Despite the wealth of knowledge that is available online, it is still common to find people making mistakes when investing in Real Estate. Many first time investors want to start out with the mentality that they need to make it big and fast in real estate. Sometimes even, due to lack of preparation, many first time investors do not make it past their first investment. In order for you to ensure that your investment is successful and actually generates wealth, below is a list of some of the mistakes to avoid:
Speculating on appreciation: Today, many people assume that when they buy a property it must appreciate in value over time, but the fact is, that is not always the case. Something you may speculate to appreciate may not provide you with the returns you had in mind, and this is usually due to market conditions that more often than not, you do not have control over.
Buying all of your real estate with cash: Applying the principle of leverage is one of greatest the benefits of a real estate investment. This is the use of various financial instruments and borrowed capital to increase the potential return on investment. It is also a strategy that allows you room to invest in other investments. Furthermore, you shall have some extra cash in hand to safeguard you against the uncertainties of the market as well as to make any developments or improvements as you go along.
Heart over head: Many people do not make a rational decision when it comes to the purchase of real estate. People can easily ‘fall in love’ with a property without realizing that the same property, when evaluated as an investment, is a terrible decision. Do the math and the due diligence around your investment to enable you to make a decision based on analytical research.
Not planning ahead: Making a real estate investment requires you to set goals, short, mid and long term goals together with a cohesive plan on how to achieve those goals. The next step is to plan the income stream, map out the capital expenditures required, and see the return on investment in a practical scenario.
Being in a hurry: Sometimes, people rush to make real estate decisions because of hearing of a ‘good deal’ or a ‘hot tip’. What is a good deal for someone else may not be a good deal for you. Do your own research, perform the necessary due diligence with the right team of people and make a decision that you have thought out carefully.
Poor cash flow management: As a first time investor, it is easy to fall into the trap of poor cash flow management because you cannot afford the investment you are getting into or any shortfalls that may come up unexpectedly. A good principle is to set aside 10% of the total investment as a back-up.
As a first time investor, the best advice you can get is to be realistic and plan accordingly. With all this in mind, hopefully, your first real estate investment, just like any other long term investment, shall be a success.
