Statistics show that property investing is not as easy as it may first seem. Many investors do not get beyond their second property and fulfill their dreams. While it possible to earn plenty of money and achieve financial freedom by investing in property, the current state of the real estate market makes it even more challenging. Still, many investors do not fail due to a slow market, but because they make some classic mistakes.
Common Property Investing Mistakes to Avoid
Some investors take the purchase of their cars more seriously than that of their properties; hence they do not undertake enough research. Many simply choose locations close to their residences or preferred retirement and holiday destinations. Emotional attachments cloud their purchases which is a serious mistake. Investors should only "fall in love" with given properties if they fit their investment goals and strategies, have upside potential and the "numbers" are right.
Lack of Planning
Being a property investor involves more than just buying property. Investors need to have well laid-out strategies that fit in with their financial situations and long-term wealth creation objectives - clearly mapping out where they intend to be within specific time frames and then prepare detailed plans to reach those points.
Investing in property without a clear plan is like going on a fool’s journey.
Missing the Bigger Picture
Investing in property is a long-term venture that requires plenty of money and a good plan. However, the plan should not be too rigid to accommodate any changes. Portfolios should be reviewed regularly.
Some types of properties outperform others significantly after a few years and investors should ensure their properties allow them to profit from the next property cycle. If properties are not likely to have strong capital growth, consider selling and replacing them with the ones that will give them long-term financial independence.
The review should not just focus on properties. Are the rents in line with current market rates? Is the mortgage relevant to the present times? Will refinancing against increased equity help in making further investments?
Being a Lone Ranger
Property investing is not just a one-person venture; successful investors tend to surround themselves with powerful teams. However, they strive to learn as much as possible about all the different aspects so they do not hand over control blindly.
Real estate investment does not bring quick riches in spite of what some will claim. Looking for big deals that will turn you into a millionaire overnight is like chasing the wind.
Investors need a lot of patience, it often requires several property cycles to build a large asset base that brings financial independence.
Looking for Bargains
Focus on finding and buying the right properties instead of the cheapest ones. Strive to buy at the best price possible, cheap often proves expensive in the long run.
To Renovate, or Not to Renovate?
Buying used properties, renovating them and holding them for a long term is a wise investment strategy. However, buying a property, applying a light coat of paint and then selling for tidy a profit is rarely practical because the purchase and selling costs, stamp duty and taxes take a significant part of the profit.
Rarely does a sound investment require minimal work.
Ignoring Real Risks
There are very real risks associated with property investing, which must be managed well for success. Besides buying properties, investors need to ensure there are financial buffers to cover any negative gearing. Buying time this way helps in getting through down times.
Taking insurance advice is often overlooked when protecting investment assets. Legally minimizing taxes is also worth seeking specialist advice on.
Expect some challenges during the initial stages but avoiding these mistakes will allow a fighting chance for profitability.
Article written by Anna Kec on behalf of Find a Financial Planner
- Wednesday 22 August 2012