Top 10 Mistakes Made By Real Estate Investors

By Vinden • December 1st, 2011

Real Estate Investors –  Are You Making These Property Investment Mistakes?

To those interested in investing in real estate / property, these tips on property investment mistakes are a useful alert!

Remember that when you’re selling your property, you’re also (typically) going to buy another property, unless you’re moving into rented accommodation.
You can view that purely as ‘your home’ or, in addition, as an investment, so these warnings about property investment mistakes are a timely reminder of what to look out for when either investing or buying your next property.

property investment mistakes

property investment mistakes

Top 10 Property Investment Mistakes

Real estate investment has, in the past, proven to be one of the most lucrative forms of investment. But it has also shown itself to be risky, especially over the last few years! As an example, we bought a property in Florida, USA for 80% less than the amount in sold for 5 years earlier! And it was owned by a real-estate agent, the people you like to think are shrewd buyers of real-estate or property!

It is therefore important to ensure that you are well-versed on the trends and nuances of the real estate or property market.

Knowing the most common property investment mistakes made by real estate or property investors will help steer you away from making similar errors and enhance your chance of a good return on your investment.

Bankrate.com has put together the top 10 property investment mistakes after speaking to established, full-time real estate investors and other professionals involved in real estate investment such as bankers.

1. Not planning ahead or not planning at all
Novice investors tend to be the biggest group who commit this cardinal sin. A proper plan is crucial. Forming a proper investment strategy and then finding a house is the right way instead of looking for a house to fit the plan. Many investors make one of the common property investment mistakes of purchasing a property simply because it seems to be a good deal and then they try to see how they can fit it into their ‘plan’.

Instead of buying a house and thinking one can plan later (always fatal!), investors should concentrate on the investment numbers and make offers on multiple properties. This will ensure a good property is purchased that not only matches your chosen investment model but that also works out well with the numbers they are in your plan.

2. Believing you can make money in property quickly

The second of the major property investment mistakes that novice real estate or property investors make is thinking it’s really easy to get rich in real estate. This is only a myth. The reality is that investing in real estate is a long-term strategy.

3. Doing it by yourself
To become a successful property or real estate investor, one needs to build a team of appropriate professionals to assist in deals. This would ideally include a real estate agent or Realtor, an appraiser, a closing attorney, a home inspector and a lender.

4. Paying over the odds
Investors in real estate often make investment errors by paying too much for the properties in which they invest. Paying too much and locking up all your funds in the badly chosen property deal will leave you with no money to redeem yourself.

5. Missing out on the basic homework

Not doing your groundwork could be one of the most expensive property investment mistakes for a real estate investor. Always learn the fundamentals of property investing before venturing into it.

6. Not exercising caution

It’s imperative that investors exercise a certain degree of caution while making a deal. New investors often fail in this area, getting excited at the mere thought of expanding their property portfolio and then sign a deal without doing sufficient research on the property.

7. Miscalculating cash flow

Investors whose strategy is to buy, hold and rent out their properties must ensure that they have sufficient cash flow for maintenance and void (empty) periods. Managing a property (particularly older ones) can be expensive and the owner is likely to incur other expenses such as mortgage, property taxes, landlords’ insurance, advertising costs, etc. Investors have to allocate their budget and make sure all these expenses are taken care of, or end up having their asset turn into a liability.

8. Keeping a low volume of deals
A larger volume of property deals or transactions helps to minimise risk in one sense by reducing the impacts of marginal deals.

9. Getting trapped by your own real estate deal
It’s prudent to have a number of options at your disposal for the property you buy. This helps one to be prepared for inevitable fluctuations in the real estate market. Plans to rent out the house could go awry if or when the rental market slumps. Having alternative plans helps you cut down losses and tackle unforeseen situations.

10. Making incorrect estimates
People who plan to refurb their investment property need to make sure they will still reap the benefits at double the renovation or refurbishment time that they had estimated as projects almost always overrun, especially if one is inexperienced. This ensures they do not miscalculate and lose money on the deal.

Investing in real-estate or property sounds glamorous and an easy path to making your fortune, but it’s fraught with property investment mistakes, as shown above. Do your research thoroughly first. Hire a real-estate or property coach and avoid the most common property investment mistakes.

So, there you have it: the top 10 property investment mistakes.

Vinden Grace

 

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