Common property investment mistakes & how to avoid themApril 26, 2022 . Home buyer's education series . 10 min read
A big problem with property investment mistakes is that they can be quite costly. Therefore, it is very important to weigh all your options and make strategic moves according to a well-laid-out plan.
Making profitable property investments is a long-term phenomenon. You learn the ropes. You make mistakes. Then you move on to the next level. Just make sure that the mistakes that you commit are not costly and stunt your future property investment prospects.
Exceptions are always there but investing in properties is not a “quick rich” undertaking. If someone offers you that, raise your antennas. We are not suggesting that you should always be cynical about quick profits but do due research before jumping into an unknown pool of speculation.
Property investment mistakes
It takes plenty of knowledge, skill, and determination to make money through strategic property investment, but if you do the right things at the right time, there is nothing to hold you back from making neat profits. Listed below are some common mistakes you should avoid while making real estate property investments.
1. Not having a plan for property investment
Before buying a property, you must know how it is going to make you money and how long it is going to take. There are two ways you are going to buy property: use your own cash or take a mortgage. In both cases, you will be blocking your resources at least for a few years unless there is a chance for a windfall profit within a few months.
Is the surrounding area going to develop? Is it going to be a good vacation rental? Are you buying a single-family unit or a condo, and if yes, why? What type of people is more prone to buying your property a few years down the line or renting it in the near future?
Prepare a detailed document. Write everything down.
2. Not researching seriously
Take for example buying a smartphone. When you are too involved and interested in the phone you are planning to buy, you do enough research. You read reviews on the Internet. You watch unboxing videos on YouTube. You try to get as much opinion as possible.
The amount of money that you are going to spend on property investment is many times over the money you may spend on a smartphone. Consequently, if not exactly proportional, the amount of research must complement the amount of money you are spending.
What type of research should you do? Here are a few pointers to consider:
- The law-and-order situation: Nobody wants to live in a neighborhood where one constantly has to call the police. Find out if it is a safe neighborhood.
- What type of development is going on nearby: Are lots of commercial buildings coming up around your property and if yes, are they going to have a positive impact or a negative impact on the presidential prospects? Such developments can be good or bad depending on what sort of buyers or renters your property attracts.
- Is it a disputed property: If the existing property owner is entangled in a legal case vis-à-vis the property you will be in trouble?
- Is the location prone to natural disasters: Is there seasonal flooding and chances of an earthquake?
- Is major construction needed: What about furnishing and fittings in the house? Is the woodwork done? Are the doors and windows in good shape or will you need to get all this work done after purchasing the property?
- How is the maintenance quality of the residential complex: Is the Residential Welfare Association (RWA) efficient? Does the developer provide adequate amenities and facilities and timely repair work?
There are many more such inquiries that you can make before deciding to invest in the property.
3. Not considering occupants or buyers before property investment
Prospective occupants or buyers are going to be your source of income. You must always invest in a property taking them into account. You may be in love with a property but unless it is going to be attractive to your target buyers and renters, it will be of no use.
Will people be interested in renting your property? What are the factors that will encourage them to rent your property (if the property investment serves the purpose of renting)?
Families with kids want a stable neighborhood with no or negligible crime rate and some good schools and shopping complexes in the vicinity. Are they being developed? Young couples want proximity to office areas and other places of commercial activities. How about the transit system? The condition of roads? Are good hospitals nearby?
4. Not considering the cost and financial implications in their totality
You must evaluate your finances before settling for a property investment deal. It is not just about the cost of the property. There may be many hidden costs and expenses such as repair work and furnishing. Property tax, registration fees, construction work required, and interior design (before the property becomes a livable place) are also required to be taken into account. Enter all the costs in an Excel sheet and make a total. Accordingly, make your financial plan.
5. Overpaying for the property
Everybody wants to make a profit. The current owner of the property may be overcharging you. Find out the ongoing property rates in the neighborhood for similar properties. You may be smitten by the exact location or a certain view from the balcony, but if similar properties are available and at the same time save you some good amount of money, find that out. Going through and visiting multiple properties may be time-consuming and frustrating but once you consider how much money you can save, the effort will be worth it.
If it was easy to make money from real estate investing, wouldn’t everyone be doing it? Just like any other investment opportunity, property investment is replete with mistakes and pitfalls. Fortunately, most of these mistakes are avoidable if you are aware of making them and you make appropriate preparations.
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