A property investment can seem like your path to riches and there’s absolutely no doubt that many successful property investors have been able to make large sums of money via such activity. For those starting out, however, there may be a number of issues that can restrict returns.
This guest post looks at 10 of the most common mistakes that investors tend to make. If you’re able to learn from problems that have thwarted others, then I believe that you are on course for success.
1. Getting your timing wrong
Some people would suggest that investing at the wrong time is purely down to bad luck, but I would say that this is actually part of the art of property investment. You need to take a look at the market and to assess whether values are going to continue to rise, or whether there might be problems ahead.
If you fail to make the correct assessment, then it’s clear to me that you leave yourself open to the possibility of making a substantial loss.
2. Failing to understand the finances
I guess that I always feel that I am in tune with the financial side of life. I have spent many years working at Egopay and have noted that some people are very casual about the way that they deal with money.
To me, this is a real problem in the world of property. You need to do your sums and to be sure that you have the capital that you need. If you’ll be looking to borrow money, then it’s absolutely critical that you should have an understanding of the associated repayments.
3. Relying too heavily on tenants
The idea of buying a house and then using rental income from tenants to make your mortgage repayments may sound like a great idea, in theory. If you make the mistake of assuming that tenants will pay up on time, however, then you are set for problems.
4. Ignoring maintenance costs
When you are working out how much money you need to raise and the likely repayments on any loans, it’s all too easy to forget the fact that any property needs to be maintained. If you fail to carry out suitable maintenance work, then you can expect the value of the property to fall. You may also struggle to attract tenants.
Take a realistic view on maintenance costs and don’t assume that tenants will be able to carry out tasks, even if they appear to you to be relatively simply.
5. Not having suitable legal agreements in place
I’ve seen some wonderful property investment companies fail, typically when the owners fall out and fail to reach an agreement on how things should proceed. Such difficulties are easily avoided, as long as you have the right legal agreements in place.
The same is true when dealing with tenants, maintenance providers and other professionals.
6. Failing to deal with problems quickly
A simple problem can soon escalate into something much larger. To take an example, a basic issue with the plumbing in a property can soon lead to serious water damage, with the costs rising all the time.
As you build your investment portfolio, you may struggle to keep up with everything that needs to be done. If you don’t take action immediately, however, you may discover that things quickly get worse.
7. Having no budget for contingencies
Things go wrong: that’s just a fact associated with investing in property. Rather than making the mistake that you will lead a charmless life, it makes much more sense to put some money aside, in case you do run into difficulties.
8. Being unsure about the location
Whether you are buying a house to live in, or an apartment as an investment, it’s vital that you should have a thorough understanding of the location. You need to understand whether you are selecting somewhere that’s desirable. If a particular property appears to be too cheap, then there may be a reason for that price tag.
9. Concentrating on a single location
If it’s your intention to buy multiple properties, then you may feel that it makes sense to concentrate your purchases within a single area. This would allow you to know the area where and to make informed decisions.
However, it also exposes you to an increased level of risk. What happens if an event causes property prices to plummet? A better tactic would involve spreading the risk and looking at different areas.
10. A lack of communication skills
It often strikes me that the best investors often have great communication skills. In your case, you’ll want to think about how you communicate with others, given that such actions can have a direct impact on income levels.
A great example of this would be remembering that retaining tenants is often easier that constantly having to find replacements to live in your properties. Keep your existing tenants happy and you will reap the financial rewards.