Property Investment for Beginners
The Beginners Guide to Investing in Property
Throughout this site you will find all the steps we recommend you take when it comes to planning and then executing your first property investment. These are positive procedures you can put in place to make sure you give yourself a secure footing with your first property investment. However, here at Evergreen Wealth Management we also like to caution that as with all investments, property values can go down as well as up and nothing in life is guaranteed. For every successful property investor with a wide-ranging and healthy portfolio there will be numerous others whose investments went wrong. Property investment for beginners, as well as experts, is no sure-fire route to riches. It takes discipline and work. With that in mind we thought we would put together a guide to the most common mistakes made by property investment beginners. The stuff that lots of people seem to get wrong when first starting out and which they wish they’d have known about ahead of time. And hopefully, by reading about these potential pitfalls now, you can ensure that you are one of those successful portfolio holders in the years to come…
The 8 Most Common Mistakes Made By Beginners In Property Investment:
A Lack of Thorough Research
As can be seen elsewhere on this site, research is at the core of making a wise property purchase. Before a single house (or plot of land) has been viewed, any would-be investor should have spent at least two to three months pouring over the property pages, gleaning information about the neighbourhoods they are interested in and speaking to real estate agents and rental agents to build a broad picture of the best locations for their investment. They should walk around these locations, getting a feel for the best streets and learning about the businesses, shops, schools and entertainment areas in that location. They should find out about the demographics of the area and the people that tend to move there and they should investigate the amenities, the roads and public transport options and any upcoming investment in infrastructure. They should know the area like the back of their hand, in other words. How else would they know about the up coming construction project at the end of the road they want to buy in? Or the incinerator to be built down the road? Not finding out about an area (through research) can lead to you buying a property without understanding all the factors that might affect the appeal of that property in the future. This could be very costly.
Not Planning Properly
Once investors have got themselves a good feel for the location and the infrastructure of an area, it is essential that they spend time planning the investment itself. A successful property investment will involve setting yourself goals for that investment, setting a strategy to achieve those goals and then working out what you need to do to follow that strategy. This starts with setting a realistic financial profit goal for the project, based on the funds you have available for your investment. Get hold of market reports and establish what properties you can get on your budget. Then decide what type of property you will be buying (or building), how long it will take to get it to market, what renovations or building works you will need to do, how much it will rent for and the loan type you will need. You will also need to plan for the future by making a decision about the legal structure you use to buy the property and by exploring all the potential tax deductions that can be made from your investment type. If you fail to take into account any of these things, or fail to plan thoroughly enough, you could end up making some serious mistakes that cost you thousands over the life of the investment.
Using Head Not Heart
After doing all that research and planning and after building a picture of the ideal property type in the ideal location, the biggest mistake new property investors make is to suddenly take a punt and buy a property based on a ‘gut feeling’ or because they have ‘fallen in love with the place!’ Now this kind of thing is perfectly common and perfectly understandable when buying a place for you to live in, especially if it is somewhere you plan to raise a family. But this is not that property and you should not be thinking (or ‘feeling’) like that. Always keep in mind that this is an investment; a cold, hard investment with the sole aim of making money. You buy an investment property with analytical research, not with a gut feeling. Don’t set your heart on a property or you will end up paying over the odds or buying a property that is unsuitable or not profitable. This is a too-common mistake for new investors and must be avoided at all costs!
Don’t Dither, Don’t Rush when Investing in Property
As with most things in life, timing is everything. Unsuccessful property investors make mistakes either because they rush in to something, acting too quickly (without doing their research and planning) or they are too cautious and don’t act swiftly and decisively enough. On balance it is better to be too cautious – no property will ever be so important that you need to be rushed into it, either by the vendor or by the real estate agent, the developer or some salesman at a property seminar! Sure, act quickly once you’ve done your research, but never, ever, jump in before you done your full due diligence and before you feel ready. On the flipside, when you are ready, don’t panic and get over-cautious and lose the property to another investor!
Get Your Finances Right
There isn’t any point in looking at properties until you know the finance is in place. The amount of new investors who see properties snatched from their grasp because of badly organised finances is huge and you should ensure it never happens to you. Getting the right finance in place means working out with a mortgage broker exactly which sort of loan will work for you both in terms of the property you want to buy and your longer term portfolio plans. Getting the right loan is almost as important as getting the right property in the right location. Certainly, getting the finances wrong can end up costing you thousands. So, get yourself a good independent mortgage broker who you trust and follow their guidance on getting the right mortgage for your plans and then makes sure you have pre-approval for that mortgage before you go ahead and try and secure your property.
A good mortgage broker will ensure this doesn’t happen, but one of the most common mistakes beginner property investors make is to overstretch with the aim of making money faster. It rarely works out. If anything, your first property investments need to be more cautious in order to give you a firm foundation on which to build your portfolio. Work out your budget, then throw in some worst-case scenarios for tenants not paying, the property sitting empty for a few months or worst of all, the market going down not up. If you have enough to ride out such scenarios then you’re doing it right. If the slightest hitch could see your finances come crashing down then you are overstretching and shouldn’t be investing.
Manage It Yourself?
If you can, it might be worth trying to manage the property yourself. It might be that your job doesn’t allow you the time to do this but if it does and it is your first property then it can give you valuable experience in finding tenants and organising rent collection and maintenance. It will also save you money in fees. However, bear in mind that in the long run this strategy won’t be cost-effective and would be a mistake. What happens when you have built a portfolio of ten or more properties? The management of that portfolio would essentially take up all your time and you would not be able to earn money elsewhere. Instead it is well worth investing in a property manager who can take care of the rent, the maintenance, the inspections and the legal issues that crop up. Property managers are worth the money they charge and in the long run an essential part of your project.
Don’t Rush To Riches
Lastly, new property investors need to learn the value of patience and slow, solid growth. We have already discussed the importance of not overstretching and of being more cautious early on. Don’t think you will become an overnight millionaire. That’s not going to happen. Concentrating on short term growth will end up being about luck of the draw and you will be speculating, not using analytical research to achieve decent medium to long term growth. Property is more secure and a better bet in the long term precisely because it is not meant to be liquid (and therefore volatile) like stocks and shares. Don’t aim for the quick sale, stick to your principles and strategies and you will get there in the end.