Thanks to Australia’s strong property market, real estate is one of the few investment sectors still showing promising returns. But like any other endeavor, there is the right and wrong way to do it.
A lot of investors will rush into a promising market without proper strategy, knowledge, or planning, and they end up losing their investments. Real estate investing requires experience, understanding, and patience to know and avoid the potential pitfalls many investors find themselves facing.
The first step in avoiding mistakes is knowing what they are. This article includes a list of the most common real estate investment mistakes and how to avoid them.
1. Lacking Knowledge and Experience
Having enough money is not the only factor to consider when deciding to invest in real estate. You must have sufficient knowledge about what you are getting yourself into.
Many real estate investors are quick to put their financial lives at risk by investing without fully understanding the possible consequences. As with everything, it is vital that you learn as much as you can about real estate investment before taking the plunge.
2. Expecting Quick Results
Self-appointed real estate gurus and their commercials mislead new, over-enthusiastic investors into believing real estate investment is a ‘get-rich-quick’ solution. Making money in real estate is definitely not the overnight success they make it out to be. It is a long-term investment which requires hard work and persistence before you reap profits.
To be successful in real estate investment, you need to be ready to research, learn, and study current market trends. You have to take time investigating your investment prospects, negotiating deals, and making smart moves at the right time.
You should also understand risk tolerance and be ready to accept losses. Have enough money saved to sustain yourself if your investment is not profitable.
Markets are unstable, so even a well-planned investment can fail or take a long time to produce results. It’s best not to bank your livelihood on quick cash coming in from your real estate investments.
3. Playing the Lone Ranger
Real estate investment is not a one man show. The key to success is building a strong team of experienced professionals. At the very least, your team should include a real estate agent, an appraiser, a home inspector, a lawyer, and a lender.
It is very important that you find a team that understands the real estate market and will look out for your best interests. Without the right people to support and guide you through your investment endeavors, you could be putting yourself at even greater risk for loss.
4. Paying Too Much
One of the greatest risks that come with not having a qualified team to guide you is getting ripped off. A lot of real estate investors do not make money because they bought an over-valued property. Many do this in hopes that the prices will hike and they will get to sell for substantially more money than they paid. While that is a possibility, it is also possible that prices may stagnant, or worse yet, fall, then you will be stuck with a property you cannot sell.
Analyze the market and learn appropriate price ranges for the type of property you are looking to invest in. Consult with a professional to ensure the analysis is done correctly. Once the analysis is done, consider buying low and selling high.
5. Failing to Plan
Many investors will buy property and then try to come up with a plan on what to do with it. That kind of impulsive, backward planning is a major reason investors lose money in real estate.
Plan how much you want to invest, where you want to invest, and what you want to do with the property after you acquire it. Then find a property that meets your needs.
6. Neglecting Due Diligence
Investing is a fast paced industry and often you have to move quickly on your deals or risk losing them. However, that is not an excuse for signing a contract without doing thorough research. Investigate and inspect the property, consider the cost and market conditions, and look at any possible legal ramifications before you finalize any deal.
7. Incorrect Estimations
When budgeting, people tend to underestimate expenses and overestimate profits. When budgeting for your investment, always estimate the maximum cost for expenses, plus a little more for unexpected expenses. Lower your expected profit to the least possible amount, then deduct a little more to cater for unexpected market conditions that might lower your property’s price.
8. Staying Too Long in the Market
A market might be secure today and crumbling tomorrow. You have to study market trends closely and be ready to sell at the right time. For example, when property prices rise, many investors have a tendency to hold on in expectation of another hike. The truth is, a sudden rise in property will probably be followed by a deep and long recession. So make quick decisions and sell while you still can.
9. Misjudging Cash Flow
If you intend on renting your property, you need a budget for the maintenance of the property and other expenses like, the mortgage, taxes, insurance, and the cost of advertising. If you have not budgeted these in, it will make a dent in your profit, especially if your property is sitting in the market for a while without being leased.
10. No Exit Strategy
What if your property does not sell or get leased? Many investors have no real exit strategy for when their investment does not go according to plan. Have several well planned exit strategies and set timelines for when to implement them.
For example, if your property does not sell in a year, you could rent it out or sell it to another investor at below market price.
Real estate investment is a very lucrative way to build wealth and generate passive income, but it is also one of the easiest ways to lose money quickly. Avoid these common mistakes to reduce your risks and increase the possibility of great returns.
By working with Liberty Strategies’ professional team, you can avoid the hassles and pitfalls of trying to ” do it yourself “.
We begin by eliminating the ” emotional roller coaster” equation investors experience, and identify your financial goals, we also keep the end result in mind when we determine your financial needs, and expectations, and structure a strategy that will allow you to build the largest asset base with the lowest holding costs by focusing on 3 key wealth creation distinctions.
1. Debt Reduction
2. Tax Minimisation
3. Asset Accumulation
To find out more about how Liberty Strategies can help you with your first investment property or if you already are investing , your next property.