Pitfalls To Be Aware Of When Investing In Real Estate
2024-02-22T14:16:24Z
Many investors start out with the intention of making big capital gains in real estate. However, only a handful that persevere will ever get past their first investment. The fact is, even less will end up creating real wealth through their endeavors in climbing up the property ladder. Perhaps you’ve envisioned buying a seremban property to develop into a rental unit. To help you out in your investment journey, we have compiled some common mistakes that beginning property investors would want to avoid, as well as some tips on how you can overcome these mistakes to build wealth with your real estate investments.
Thus, buying and selling property is not an easy feat, and doing so will rarely make you instantly reach. Buying and selling real estate takes time and involves numerous costs (such as capital gains tax). While some might see this as a shortcoming, it is in fact a strength. Real estate, as a tangible asset, is a proven commodity that everyone needs. Hey, you live in it! It has proven time and time again to be able to provide steady, long-term returns through the power of compounding. What this means it that the gains from one property can be used to leverage into another property, and with the combined gains from these properties, you buy more to add to your real estate portfolio. What’s better is that you can use another person’s money to do so.
Thus, avoid the mistake people make by looking only at fast gains. Instead, use the properties of real estate how it is meant to be used: growing consistent returns over the long term.
Engage the services of an accountant or financial planner who knows enough about real estate investment to offer you professional financial advice. They can even plan your financial strategy for you, examine each investment analytically, suggest viable investment options, and also ensure that you make adequate allowances. This helps you keep your eyes wide open when you enter into property investment for all the out of pocket expenses you’re bound to incur along the way.
A good rule to stick by is to underestimate your income and overestimate your expenses. This help you have better cashflow management, which means that you’re more likely to avoid any unexpected surprises that might break the bank.
Are you investing in an area or suburb that predominantly attracts young millennials or large families? Before you leap and purchase, look and evaluate. Take a look into the demographic of the area. This can give you the first hint when it comes to what type of property to buy in said area, and this will make all the difference.
Here’s the bottom line: know your target, know your market and buy accordingly.
What you can do is to engage the services of a professional property manager to handle all of these things on your behalf. What’s more, with years in the business under their belt, they will know the ins and outs of the property business. They can help you find suitable and quality tenants, know the laws, conduct regular inspections, collect the rent and even represent you at tribunals should things go awry. Not only that, they will deal with all the maintenance issues that pop up and be on call for your tenants 24/7.
This gives you something even more valuable than money when it comes to investing – your time. All of this time that you could spend managing your portfolio could be put to better use, such as in finding more investment properties and thus generating and building even more wealth.
1. Speculation over patience
One of the biggest misconceptions when people get into property investment is that they can turn into overnight millionaires. They think that property can and will be a quick financial vehicle that offers short-term gain. However, the truth is, this is merely more about speculation that strategic investing. Rather, bricks and mortar are long-term prospects with stability. They lack the liquidity and volatility of other investment classes such as stocks or bonds.Thus, buying and selling property is not an easy feat, and doing so will rarely make you instantly reach. Buying and selling real estate takes time and involves numerous costs (such as capital gains tax). While some might see this as a shortcoming, it is in fact a strength. Real estate, as a tangible asset, is a proven commodity that everyone needs. Hey, you live in it! It has proven time and time again to be able to provide steady, long-term returns through the power of compounding. What this means it that the gains from one property can be used to leverage into another property, and with the combined gains from these properties, you buy more to add to your real estate portfolio. What’s better is that you can use another person’s money to do so.
Thus, avoid the mistake people make by looking only at fast gains. Instead, use the properties of real estate how it is meant to be used: growing consistent returns over the long term.
2. Poor cashflow management
The trap of poor cashflow management is an easy trap to fall into, especially for the beginning investor. You need to understand all of the costs involved in acquiring and holding real estate properties. Sometimes, it can be difficult to know exactly what you’re getting into financially. There are too many hidden and overhead costs that you may fail to take into account. For example, you need to take into account contingencies such as vacant periods and or unexpected maintenance costs. Thus, it is vital that you make sure that you can afford your property purchase.Engage the services of an accountant or financial planner who knows enough about real estate investment to offer you professional financial advice. They can even plan your financial strategy for you, examine each investment analytically, suggest viable investment options, and also ensure that you make adequate allowances. This helps you keep your eyes wide open when you enter into property investment for all the out of pocket expenses you’re bound to incur along the way.
A good rule to stick by is to underestimate your income and overestimate your expenses. This help you have better cashflow management, which means that you’re more likely to avoid any unexpected surprises that might break the bank.
3. Buying the wrong property
One of the biggest investment blunders is buying something that doesn’t fit your investment strategy. For example, if you are looking to get in on the family market, don’t invest in a small studio apartment. If you’re targeting young millennials, don’t invest in a large family home. In other words, knowing your target market helps you know what property you should invest in.Are you investing in an area or suburb that predominantly attracts young millennials or large families? Before you leap and purchase, look and evaluate. Take a look into the demographic of the area. This can give you the first hint when it comes to what type of property to buy in said area, and this will make all the difference.
Here’s the bottom line: know your target, know your market and buy accordingly.
4. Financing faux paus
The best financial advice for any beginning investor is to seek help from a qualified, professional loan broker or officer. There are too many financing choices available. Getting the perfect financial structure is just as important as selecting the right property. Researching into this can be a daunting and time-consuming experience. So, take a quick shortcut by having a qualified professional do it for you. There are numerous considerations to take into account, and a good broker, who is bound to be financially savvy and sound, will understand investments enough to steer you in the right direction. Not only do you get the best deal, you get sound financial advice too!5. Saving by self-managing
Once you have done all the groundwork and secured the prefect property to invest in, the real hard work actually begins! Now comes the managing of your investment portfolio. Many investors start out by doing their own managing. They find their own tenants and act as their own property managers, that is, they organize the collection of rents and maintenance themselves. In the short-term, this might save you a packet, and it seems plausible enough. However, when your portfolio expands, as it is bound to, the ongoing management of your enlarging portfolio essentially becomes a full-time job.What you can do is to engage the services of a professional property manager to handle all of these things on your behalf. What’s more, with years in the business under their belt, they will know the ins and outs of the property business. They can help you find suitable and quality tenants, know the laws, conduct regular inspections, collect the rent and even represent you at tribunals should things go awry. Not only that, they will deal with all the maintenance issues that pop up and be on call for your tenants 24/7.
This gives you something even more valuable than money when it comes to investing – your time. All of this time that you could spend managing your portfolio could be put to better use, such as in finding more investment properties and thus generating and building even more wealth.