Many property owners who bought their property hoping to be a savvy property investors and build their wealth from there. Little do that know that if the research on property investments is done on the surface level, they could make losses and wasted their time. From setting the property value to drafting tenancy agreement to financial loans, all these if are not well planned or researched, you could regret. Here are some of the common mistakes that most property owners make.
Emotion vs logic
You should listen to your head over your heart. Many reckless property investors make their purchase decision based on 90% emotions and 10% logic. The projection or vision of owning your own home or sanctuary to build a family got you into making decisions based on your emotions. This is a trap for using your heart to rule your decision making and then you will regret the following day. Be it buying or selling, you shouldn’t let your emotion cloud your judgment in negotiating for possible price and outcome for your investment goals.
What you should do is to do analytical research when buying property for investment. There are some questions you should ask yourself.
- What are the returns or gains that I want to get?
- Is the location of the project will attract quality tenants or fetch higher value?
- Will the value sustain in long term?
By answering these question, you are thinking on logical side. You won’t be thinking if the house will need the rose colour curtain that you dream of or if this house could be your party house. Investing is all about the economics and not emotions.
Fail planning
There is a saying that goes ‘when you fail to plan, you plan to fail’ and it is applicable to property investment too. Your attempts to build a property portfolio without proper planning could lead you to wrong turn and you may end up a lost sheep during the journey to build your wealth. A successful real estate investor will need you to set own goals, determine your final destination and then strategize a plan to get there.
Get yourself focus to identify your short and long term goals then make sure your investment decisions are connected to your overall strategy. Set your income goals that you would want to achieve - are you looking at short term yields or long term capital growth? And can you manage your cash flow as a savvy investor?
Speculation
Many amateurs thought investing in properties will turn them into millionaire overnight. Here’s the truth, property investment is not a quick fix to your financial problems and speculation is for short term investing rather than strategic investment. It takes time to sell real estate where you have to deal with lengthy legal processes and numerous costs and when they miscalculated their timing to sell, they could miss their ideal price to sell. During the process of buying or selling, anything can happen. Thus, strong financial power is important because the property value will increase over time. Don’t forget if your property holding tenure is less than five years, you will have to pay for real property gain tax(RPGT), the shorter the more you have to pay.
Wrong property
Buying the wrong property is the biggest blunder ever and it is a shame that you did not do your research. Demographic of the area is important because you will need to know what’s the demand and lifestyle of the property and area. For example if the property you are looking at is in suburb that means most of the occupants are for families, the ideal type of property units you should invest is apartment or condominium that has more than 2 bedrooms. At the end of the day, know your market before putting down your deposit.
Cash flow management
Poor cash flow management is a trap and a big one. Understanding all costs involve during the transactions of buying or selling can be difficult to track, get an agent or accountant to help you track your budget. How much income investment generate and will it be enough to cover your outgoings? Can you manage your shortfalls? Have you got any financial contingencies that you can use it for next few months of maintenance feesor other necessary fees. Here’s a tip, buffer about 10% of the property value for taxes, insurance and management or maintenance fees. Overestimating your income and underestimating your property related expenses will not make your millionaire dream come true.
In all, research and analyze your investments whether it is financing, cash flow, property type, location and all factors. Do your research in depth and understand well the property surrounding and your wealth building is not far away.
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