Property investment seems one of the most sure fire ways of making money. In today’s uncertain economic climate, surely you can’t go wrong with property? In fact, many first time property investors founder on the rocks. There’s a number of traps you need to be wary of:
1) Poor Research
Far too often investors come a cropper by buying the best house in the worst street, or, through buying a terrific property in an area that’s in economic decline. So make utterly sure that you’re buying into a real estate hot spot. Check the sales results for the area over the last ten years. That way you’ll be able to spot any trends. You’ll also be able to tell if the market is rising or in a slump. Also do the comparatives. Check how similar properties to the one you’re interested in have fared over the last ten years. It also doesn’t hurt to hire a professional like a buyer’s agent.
2) Over Extending The golden rule of investing is to only put out what you can afford. Be careful not to get too enthusiastic and borrow over budget. Remember that real estate is definitely a long-term investment. You won’t make money back straight away and you usually need a few years for your property to increase value. On top of that you may well be spending capital on renovations, improvements and general maintenance, so factor that in. When putting money into real estate it’s best to be prudent. Don’t assume that every improvement will add value and keep money aside for contingency. Overall, always err on the far side of conservative.
3) Not Having An Escape Plan
Where investors can crash and burn is in not having a contingency plan if things go wrong. If there’s a sudden global market crash or you find yourself in an unexpected personal situation where you have to sell everything make sure there’s a quick way to get out. Always prepare for the unexpected. So consult an expert about having the flexibility to let go of your investment property as quickly as you need to.
4) Not Being Patient
Unlike other investments, property is long term. Don’t expect to make a windfall quickly. If it’s a property that requires renovations that will set you back even more. You may initially struggle with the income not covering your mortgage. As an investor you will probably only make money when you resell. In which case be in it for the long haul. If you’re depending on a return quickly then you’ll be in financial trouble.
5) Getting Emotionally Attached
Here’s where a lot of investors fall down. They’ll get sucked in by the water views or the sundrenched living room during an open for inspection and fall in love with the property. While it’s certainly good to like the property you’re buying, remember: you’re not living there. You have to think in a clear and hard headed way. See what the flaws are; how much it will cost to renovate and what the likely returns will be. You may love its eccentricities, but if no one wants to rent it, then you’re horribly stuck.
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