In this article we will provide you with an insight into the things you should avoid when investing in property, from our guest writer from Your Property Why, Hazel De Kloe.
Learning from our own mistakes can often be the best lessons we ever have, however, isn’t it better if we can learn from others and avoid making them altogether! Read below to find out the top 5 ‘costliest mistakes’ to avoid when investing in property:
1. Investing in the wrong area for your strategy or requirements
As an example, this means when you buy a property as a cash flow investment expecting an immediate ROI (Return on Investment) through rental returns, but end up with the property either breaking even or, worse, costing you money each month instead. The property has therefore not met your objectives.
2. Buying deals listening solely to advice from others, without doing your own research
I have met too many people who have done this and suffered as a consequence. Remember, the only person who has your best interests at heart is you. Never just blindly trust someone else to know what constitutes the best investment for you – you give away your power by doing this. Paying for the right guidance on how to do this properly could make you a fortune.
3. Not understanding the numbers properly
I make the point here that far too few people truly understand the financials of the property business. This includes how debt can work against you; how not accounting for depreciation can potentially jeopardise your portfolio; how interest rate fluctuations can affect you and how miscalculating the cost of borrowing (i.e. if you’ve raised a loan or increased your home mortgage to put down as a deposit) can actually put you into negative cash flow, etc. Equally, there is a major difference between a ‘Yield’ calculation and a ‘Net Return’ or ‘True Rate of Return’, which is all too often overlooked by people entering the property market.
4. Not knowing when to buy...or when to sell
Many people try to time the market ‘just right’ and therefore never buy anything. I have also worked with people who have tried to ‘hang on’ to a property for dear life, even when it is taking them down. The key here is to go into an investment with your eyes wide open and ensure that it works for you from the very beginning. Timing the market is important, however if you know what you are doing, you can make money regardless.
5. Going it alone
I’m sure you’ve heard the saying ‘No man is an island’ and it is certainly true when it comes to building up a property business. As already mentioned, learning from your own mistakes can be costly as you ‘don’t know what you don’t know’. When armed with only a little information it can be a dangerous thing in this game. There is no denying that none of us know it all and therefore it is always prudent to consult with people whom you know have achieved what you would like to achieve, so that you understand fully what you are getting into.
Of course, these are my own personal opinions and should be taken as such. There are many more ‘rules’ or ‘guidelines’ you could follow; when you start off and during the course of investing and you will also discover your own along the way. These are just a few to either get you off on the right foot or help you progress.
Wishing you every success and ‘safe’ investing.
Hazel de Kloe – Your Property Why
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