If you plan to go into real estate, do not expect that it’s a walk in the park.
While you may have the land or funds to jump-start your new endeavor, it takes a lot more to succeed. It also helps to know the common mistakes seasoned investors have made so you can avoid making the same mistakes.
Here are a few of the common mistakes you need to steer clear of:
Deficient planning
Choosing the appropriate property and attaining the desired outcomes require more than luck. An investment should start with a proper plan that addresses the goals and objectives of the investors. Investing in a property without a plan is bound to fail.
A common mistake among gung-ho investors is rushing into buying property or entering into a deal because they do not want to be left behind when the market is hot. First-timers should know what they want to do with the land, house and lot, or condominium unit they wish to purchase.
How do you generate incomes from your investments? Do you aim to receive monthly rent and or are you looking forward to flipping the property and earning a respectable return early, in the medium term, or in the long run? Do you have a defined timeframe to flourish in your newly found business? What is your acceptable return on the investments? What would you do if your investments do not prosper? When should you exit from the failed undertaking?
Insufficient research and due diligence
Before buying any property, know more about the state of the real estate industry in your locality, how it is performing in the national scene, and possibly how it will be impacted by global events. With proper research, you will be able to find out possible issues or concerns that would affect your price negotiation or purchase decision.
Check out the specific property you wish to purchase. With meticulous due diligence, you should be able to confirm the ownership rights of the seller, including the history of previous owners, if any. You will also be able to know how much the previous owners paid for the property and how high its value had increased over time.
If there is another important consideration to remember, it is that the opinions of others, especially from relatives or friends, need to be independently verified. While they may be trustworthy, it is nevertheless possible for them to honestly miss out on a lot of information.
Understanding the demand and supply situation will guide you as to when to make such investment, as timing is very important in real estate. Being aware about the state of the property market can direct you into selling the property ahead of an oversupply situation or eventful geo-political crisis, so that you can realize or maintain your desired profit, and survive a potential market crash.
Lack of know-how
Many first-timers believe that they can close transactions on their own. Unfortunately, successfully closing an agreement is not as easy as it seems. Even seasoned developers and businessmen know that they need to engage professionals to help them in purchasing properties and making deals.
Consider tapping a lawyer or paralegal associate in undertaking the due diligence work so he can help identify any defect during background checking. He may also be engaged to verify the authenticity of the certificate of title and attendant records, scrutinize the details and fine prints in the sales document, determine the acceptability of the sales conditions, etc.
While most properties are perceived as safe investments, there may be risks that need to be flagged and managed. Experts in the field can share their wealth of experiences, provide valuable inputs and offer sufficient guidance newbies need.
Not enough cash flow
More money may be needed to fund the investments. Calculate all the obligatory and incidental expenses before purchasing a property. Taxes and government fees can easily add up to the total expenses. Underestimating the costs meanwhile, can eat up on the profits. Thus, investors have to be prudent with their costs to be able to manage their revenue and income expectations.
Don’t fall in love with any property and acquire it blindly. Entrepreneurs know too well that not all real estate endeavors are for them. Compare available properties and their price reasonableness. Overpaying will force you to work much harder to reach your desired returns, i.e., double your efforts and lengthen your recouping timeframe.
Have enough funds to keep the business afloat and going. Secure the correct amount of financing, source them from the right lender, agree to a sound mortgage and reasonable repayment terms and conditions. It pays to be realistic with earning projections.
Final word
Errors are bound to happen as no one is perfect but understanding how these mistakes happen can spare investors from trouble.
They may just spare you from making the biggest mistake of your life’s work.
References used include “8 Mistakes That Real Estate Investors Should Avoid” by Glenn Curtis (investopedia.com), and “Six Real Estate Investing Mistakes Beginners Should Absolutely Avoid” by Terry Painter (forbes.com)
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Henry L. Yap is an architect, environmental planner, real estate practitioner and former professorial lecturer.