Investor
Property Investment For Beginners – 10 Common Mistakes
29-Jan-2019
When it comes to property investment, there’s no shortage of information available about what budding investors should do in order to ensure success.
But perhaps more important are the pitfalls to avoid so you don’t become a statistic of the property game.
While many investors start out with the intention of making it big in real estate, only a handful will ever get past their first investment and even less will create real wealth by climbing to the top of the property ladder.
To help you out, take a look at 10 of the most common mistakes investors make and some tips on how you can overcome these to win big with real estate.
1. Heart over Head
When buying a home, about 90% of your purchasing decision will be based on emotion and only 10% on logic.
This is understandable, as your home is where you’ll raise a family.
It’s your sanctuary.
When it comes to investing however, letting your heart rule your buying decision is a common trap to be avoided at all costs.
Allowing your emotions to cloud your judgement means you are more likely to over-capitalise on your purchase, rather than negotiating the best possible price and outcome for your investment goals.
2. When beginning property investors fail to plan they plan to fail
It’s an old adage but very true.
The key aim of most beginning property investors is to build a lucrative property portfolio. One that will one day give them financial freedom.
However doing so without a plan of attack is like setting out on a road trip without a map…you’ll inevitably take a wrong turn and end up lost!
In reality, planning is bringing the future into the present so you can do something about it now!
Successful wealth creation through real estate requires you to set goals, determining where you want to end up, and then devising a cohesive plan to get there.
You need to focus on both the short and long term and ensure your investment decisions gel with your overall strategy.
So plan your action and then action your plan.
> Define your financial goals;
> See whether your goals are realistic, especially for your timeline;
> Measure your progress towards your goals
> Find ways to maximise your wealth creation through property;
> Identify risks you hadn’t thought of.
3. Diving in or Dithering
Two of the most common traits of budding real estate investors who never make it beyond their first property (or sometimes never even make it to their first!), are either acting too impulsively or being overly cautious and never acting at all.
The first is being in too much of a hurry.
They think they have to have it all yesterday.
They attend one seminar and buy into the first crazy scheme they’re sold without thinking it through and when it doesn’t make them rich overnight, they lose heart and throw in the towel, saying property just isn’t for them.
The second are procrastinators and their own worst enemy.
They attend every seminar, read all the books, listen to all the property podcasts and watch all the videos, only to end up overloaded with information and unable to act.
While the former can sometimes learn from their mistakes and make a success of their investment endeavours, the latter will never overcome their fears.
The best you can do is find a happy medium – sure, learn as much as possible to make you comfortable with your investment decisions but don’t think you can ever know it all before you begin.
4. Speculation over Patience
We've found many beginning property investors are hoping to become overnight millionaires.
They think property will be a quick fix to their financial problems, but the truth is seeking short term gains in real estate is more about speculation than strategic investing.
The primary reason that bricks and mortar is a long term prospect is that it lacks the liquidity and hence the volatility of other assets classes, such as shares.
In other words, it’s not all that easy to buy and sell property, and doing so will rarely make you rich.
It takes time to sell real estate and then there are the numerous costs involved, including capital gains tax.
Where some might see this as a shortcoming, we see it as a strength; because property is a proven commodity that we all need, it has the tried and tested ability to provide steady, long term gains through the power of compounding.
In other words, you use the gains you make from one property to leverage into another property and then with the combined gains you make from those two properties, you buy more to add to your portfolio.
By approaching property investment with patience and persistence, you will gain far more success (and wealth) than if you seek out the “next big thing”.
5. Not doing your homework
Understanding property markets takes time.
So don’t think you can attend a seminar or two, or read a couple of books and have a handle on exactly what to buy.
Sure you can research an area on the internet or go to 100 open for inspections. The problem is what is lacking is perspective and that’s something money can’t buy.
6. Buying the wrong property
Of course this is one of the biggest investment blunders of all!
Firstly you’ll need to choose the right investment location, one that will outperform the averages because it is going through gentrification, or because it is where affluent owner occupiers want to buy.
Then you’ll need to buy an investment grade property – one that will remain in continuous strong demand by owner occupier and tenants in the future.
7. Poor cashflow management
It’s easy to fall into the trap of poor cashflow management as a beginning property investor.
Understanding all of the costs involved in acquiring and holding property can be difficult and you should always seek the advice of a professional accountant who knows about real estate investment to ensure you know exactly what you’re getting into financially.
A good rule of thumb is to allow about 10% of the property’s value for costs such as rates, land taxes, insurance, maintenance and management fees.
8. Financing faux pars
As you progress through your property journey you’ll realise that real estate investing is a game of finance with some houses thrown in the middle.
So the best advice we can give any beginning property investor when it comes to financing your property investments is to seek help from a qualified, professional mortgage broker.
Going it alone can be daunting and time consuming and obtaining the right type of finance can save you thousands in the long run.
9. Being less than thorough
So you’ve found the right property and you’re ready to make a move.
Have you really done every little bit of research into the investment?
Do you know why the vendor is selling?
Knowing the vendor’s motivation can make a big difference when it comes to negotiating a good price.
During the initial inspection look for clues as to the vendor’s personal situation; are they going through a divorce for instance?
While it might sound a little callous, this gives you an opportunity to buy a bargain, as well as giving the seller a chance to move on with their lives.
10. Saving by self managing
Many investors think by self managing their portfolio; that is finding their own tenants and acting as their own property managers by organising the collection of rents, maintenance, etc will save them a packet and give them greater profit.
Wrong, wrong, wrong!
Paying a professional property manager to handle all of these things on your behalf will not only mean you get the best outcome for your rental property in terms of a good tenant and the best possible returns, it will also give you something just as valuable as money when it comes to investing – time.
SOURCE: Michael Yardney
But perhaps more important are the pitfalls to avoid so you don’t become a statistic of the property game.
While many investors start out with the intention of making it big in real estate, only a handful will ever get past their first investment and even less will create real wealth by climbing to the top of the property ladder.
To help you out, take a look at 10 of the most common mistakes investors make and some tips on how you can overcome these to win big with real estate.
1. Heart over Head
When buying a home, about 90% of your purchasing decision will be based on emotion and only 10% on logic.
This is understandable, as your home is where you’ll raise a family.
It’s your sanctuary.
When it comes to investing however, letting your heart rule your buying decision is a common trap to be avoided at all costs.
Allowing your emotions to cloud your judgement means you are more likely to over-capitalise on your purchase, rather than negotiating the best possible price and outcome for your investment goals.
2. When beginning property investors fail to plan they plan to fail
It’s an old adage but very true.
The key aim of most beginning property investors is to build a lucrative property portfolio. One that will one day give them financial freedom.
However doing so without a plan of attack is like setting out on a road trip without a map…you’ll inevitably take a wrong turn and end up lost!
In reality, planning is bringing the future into the present so you can do something about it now!
Successful wealth creation through real estate requires you to set goals, determining where you want to end up, and then devising a cohesive plan to get there.
You need to focus on both the short and long term and ensure your investment decisions gel with your overall strategy.
So plan your action and then action your plan.
> Define your financial goals;
> See whether your goals are realistic, especially for your timeline;
> Measure your progress towards your goals
> Find ways to maximise your wealth creation through property;
> Identify risks you hadn’t thought of.
3. Diving in or Dithering
Two of the most common traits of budding real estate investors who never make it beyond their first property (or sometimes never even make it to their first!), are either acting too impulsively or being overly cautious and never acting at all.
The first is being in too much of a hurry.
They think they have to have it all yesterday.
They attend one seminar and buy into the first crazy scheme they’re sold without thinking it through and when it doesn’t make them rich overnight, they lose heart and throw in the towel, saying property just isn’t for them.
The second are procrastinators and their own worst enemy.
They attend every seminar, read all the books, listen to all the property podcasts and watch all the videos, only to end up overloaded with information and unable to act.
While the former can sometimes learn from their mistakes and make a success of their investment endeavours, the latter will never overcome their fears.
The best you can do is find a happy medium – sure, learn as much as possible to make you comfortable with your investment decisions but don’t think you can ever know it all before you begin.
4. Speculation over Patience
We've found many beginning property investors are hoping to become overnight millionaires.
They think property will be a quick fix to their financial problems, but the truth is seeking short term gains in real estate is more about speculation than strategic investing.
The primary reason that bricks and mortar is a long term prospect is that it lacks the liquidity and hence the volatility of other assets classes, such as shares.
In other words, it’s not all that easy to buy and sell property, and doing so will rarely make you rich.
It takes time to sell real estate and then there are the numerous costs involved, including capital gains tax.
Where some might see this as a shortcoming, we see it as a strength; because property is a proven commodity that we all need, it has the tried and tested ability to provide steady, long term gains through the power of compounding.
In other words, you use the gains you make from one property to leverage into another property and then with the combined gains you make from those two properties, you buy more to add to your portfolio.
By approaching property investment with patience and persistence, you will gain far more success (and wealth) than if you seek out the “next big thing”.
5. Not doing your homework
Understanding property markets takes time.
So don’t think you can attend a seminar or two, or read a couple of books and have a handle on exactly what to buy.
Sure you can research an area on the internet or go to 100 open for inspections. The problem is what is lacking is perspective and that’s something money can’t buy.
6. Buying the wrong property
Of course this is one of the biggest investment blunders of all!
Firstly you’ll need to choose the right investment location, one that will outperform the averages because it is going through gentrification, or because it is where affluent owner occupiers want to buy.
Then you’ll need to buy an investment grade property – one that will remain in continuous strong demand by owner occupier and tenants in the future.
7. Poor cashflow management
It’s easy to fall into the trap of poor cashflow management as a beginning property investor.
Understanding all of the costs involved in acquiring and holding property can be difficult and you should always seek the advice of a professional accountant who knows about real estate investment to ensure you know exactly what you’re getting into financially.
A good rule of thumb is to allow about 10% of the property’s value for costs such as rates, land taxes, insurance, maintenance and management fees.
8. Financing faux pars
As you progress through your property journey you’ll realise that real estate investing is a game of finance with some houses thrown in the middle.
So the best advice we can give any beginning property investor when it comes to financing your property investments is to seek help from a qualified, professional mortgage broker.
Going it alone can be daunting and time consuming and obtaining the right type of finance can save you thousands in the long run.
9. Being less than thorough
So you’ve found the right property and you’re ready to make a move.
Have you really done every little bit of research into the investment?
Do you know why the vendor is selling?
Knowing the vendor’s motivation can make a big difference when it comes to negotiating a good price.
During the initial inspection look for clues as to the vendor’s personal situation; are they going through a divorce for instance?
While it might sound a little callous, this gives you an opportunity to buy a bargain, as well as giving the seller a chance to move on with their lives.
10. Saving by self managing
Many investors think by self managing their portfolio; that is finding their own tenants and acting as their own property managers by organising the collection of rents, maintenance, etc will save them a packet and give them greater profit.
Wrong, wrong, wrong!
Paying a professional property manager to handle all of these things on your behalf will not only mean you get the best outcome for your rental property in terms of a good tenant and the best possible returns, it will also give you something just as valuable as money when it comes to investing – time.
SOURCE: Michael Yardney