Pitfalls of being a first time investor
Published on August 30, 2018
Reading Time : 4 Mins
Making your first property investment is a pretty big step. Whether you’ve put some money aside and want to start investing in real estate, or are seeking to buy your first home, it is best to take precautions to ensure you are making the right decisions. Here are some of the biggest mistakes to avoid as a new property investor:
1. Making emotional decisions
It may come as a surprise to you, but most homes are purchased based on emotions, rather than because of any financial benefits etc. It is difficult to disassociate one’s rational self from the knowledge that this is where you might be raising a family. But if your purchase is strictly for investment purposes, you have to avoid ‘listening to your heart’, so to speak.
Allowing your emotions to cloud your judgement means you are more likely to over-capitalise on your purchase, rather than negotiating the best possible price and outcome for your investment goals. Ask yourself difficult questions. Will it provide the gains and returns you require? It is in the best location to attract quality tenants? Will it appeal to the owner occupier market that sustains property prices in the long term?
2. Skipping on research
Understanding property markets takes time. Once again, don’t go by a ‘gut feeling’. Attending seminars and reading books on real estate is good, but it isn’t enough. You need to know the area you intend to invest in like the back of your hand. Go there in person. Talk to everyone from residents to real estate agents and property managers. Find out everything there is to know about the amenities and vacancy rates of properties in the area. You can never know too much about your investment!
3. Poor cash flow management
It’s easy to fall into the trap of poor cash flow management for someone new to property investments. Understanding all of the costs involved in acquiring and holding property can be difficult and you should always seek the advice of a professional accountant who knows about real estate investment to ensure you know exactly what you’re getting into financially. You also need to make sure that you can afford to hold onto any property you buy.
4. Investing in the wrong property
This is a culmination of failing to do all of the above, and is the ultimate investment blunder. By not knowing your market, you will not really know what property to buy. And buying the wrong property in the wrong area can be a huge problem. Like investing in a studio apartment in an area that predominantly attracts families, for example. The demographic of an area will make a big difference when it comes to what type of property you buy.
At the end of the day, it is vital to know your market and buy accordingly.
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