Investing in real estate brings with it risks that every invest or must be prepared to face. When starting out as a real estate investor, the most important thing to know about yielding a high return is that it requires timely and calculated decisions. To those new to property investing, minimise your risks by making sure to avoid the following mistakes:
1. Investing without planning
Never rush to buy a property without a clear plan. A clear investment plan should involve careful considerations as to what type of investment property you will be purchasing while knowing the risks you are taking. A plan to buy cheap and resell at a profit means you will need to look for properties in distress while a plan involving renting or leasing will mean you need to look for properties in upcoming areas with low vacancy rates.
A well thought out plan will guide you toward making the correct purchase decision so as to minimise risks for your investment.
2. Buying without sufficient research
Another common mistake made by beginners is failing to do sufficient research. Once you have a plan on what type of property to invest in, start doing research to help you determine various factors such as a fair offer price, vacancy ratios, ease of reselling or leasing and the rate of appreciation.Don’t just rely on media reports or opinions expressed by other investors and rush to secure a deal. Property purchasing requires a lot of preparation in terms of market research, making inquiries, and getting expert opinions to ensure that you get the returns you seek. Failing to do diligent research will likely result in leading you toward making a wrong purchase.
Often, first-time investors focus only on cash required to purchase the property and fail to anticipate future expenses like essential repairs, maintenance, renovation, insurance, advertising, hiring a property manager and even paperwork. These expenses can add up to a big amount and if not budgeted properly for, will only delay the selling or leasing of your property. This means it takes a longer time for you to yield returns. Hence, ensure that you budget your cash flow to have sufficient and perhaps extra funds so you cover not only the purchasing cost but all other associated costs.
4. Not consulting a professional
Having followed step 1-3, many first-time investors may think that they are now ready to take on investing property on their own. While you could save costs doing so, you are also taking a huge risk given the scale of the investment. Why not enlist the necessary professionals to make your investment process easier:
- Hire a real estate agent who can inform you about good deals in an area.
- Consult a property inspector to identify potential issues with the property.
- Get an attorney to inspect property titles and draft the sale agreement.
- Consult an accountant to helpmanage your finances well. Your accountant will advise on a suitable property loan based on your personal situation and financial ability
Seeking professional advice can make the investment process easy for you while minimising your chances of making a mistake. It is wiser to spend some money now to make a more informed decision than incur heavy losses by making the wrong investment.
5. Not being flexible with your exit strategy
An exit strategy is crucial since the real estate market is highly volatile and unpredictable. A safe option is to always have an alternate plan for your property. If you had planned to resell the property but see that property prices have dipped, be open to leasing it first. If it is difficult to do so, you should be willing to sell it at a much smaller profit or even at a minimal loss and exit before it is too late. Not having a back-up plan or having one which you are not flexible with can leave you unprepared to meet unplanned changes in the market.
Irrespective of whether you have taken up real estate investment as a hobby or as a career, it is important to know that an investment involves not just a high sum of money but also effort and time. Avoid making mistakes that can be damaging to your portfolio by taking note of the above pointers so you have a better chance at a rewarding investment experience.