Real estate investments enable you to accumulate wealth and to you attain your financial goals within a desired timeframe. Unfortunately, many novice investors who lack an understanding of the common real estate investment pitfalls can easily lose instead of make money.
Before jumping in, it’s extremely important to understand and avoid the main causes of failure. These are:
1. Lack of Right Education
The major cause of most real estate investment failures is probably careless investing. Many beginners start off by listening to friends and family members. They get free advice on what works and how to succeed. What they may not realize is that free advice can be very expensive. It may be the case of the blind leading the blind. Learning to invest from people who have only bought one or two properties in their lifetime via the trial and error method is time-consuming, frustrating and expensive. You pay with mistakes – costly mistakes! One wrong property purchased can cost you thousands of dollars and may take a few years of your life to undo the damage done!
With a small investment of time and money, you can easily avoid costly mistakes and reap profits from day one. Take the time and trouble first to read all the relevant property investment books and attend educational courses on this subject. After all, the best real estate you can ever invest is in the real estate between your two ears! You should also look for the right mentors who started at the same financial position as you - and who has achieved success with several properties. Learn from their experiences, avoid their mistakes and replicate their successes.
2. Inadequate Research
Another major cause of real estate investment failure is inadequate research. While it’s not that difficult to find investment properties, finding the one that is profitable is another story. Many become so excited about owning a property that they get blind-sighted. They may buy a property that looks good on the surface rather than investing time and effort doing research.
A savvy investor would usually watch the market for a few months before diving in. He would select a few specific locations and get to know it well. He would get to know all the negotiators specializing in that area and details of all properties available for sale and those that have been transacted in the last few months.
By doing these, you will acquire a solid foundation needed to determine which properties and locations make investment sense. When the right property in the right location comes up at the right price, you would be able to confidently purchase it without any hesitation.
3. Emotion-Based Decisions
The third major cause of real estate investment failure is emotion-based decision making. Successful investing is purely a numbers game and it’s done without any emotions.
One of the biggest challenges a real estate investor has is in studying the numbers on each and every potential property. It takes discipline and experience to pass on properties that may look good initially, but don’t stack up number-wise. Buying based on emotions or impulse can cost thousands of dollars, hours and headaches. Before investing in real estate, ensure purchase decisions are based not on emotional reasons, but on sound facts and figures. Whenever in doubt, it’s advisable to get appropriate impartial advice from other like-minded property investors.
4. Paying Too Much
Another major cause of real estate investment blunder is paying too much for a property. Once the papers are signed, few things are worse than discovering you paid more than you should have. Paying in excess of a property’s worth requires time to recoup the extra expenses and lowers your return on investment.
While individuals who buy property to live in are prepared to pay more for emotional reasons, investors should always aim to pay the fair or lower-than-market price. It’s all about the numbers. Conduct thorough research on the area and compare prices to ensure you can get a decent return on investment. Also, get a valuation report before confirming your purchase price. In property investments, profits are made at the point of purchase, and not at the point of sale. Buying is entirely within your control, whereas selling a few months or even a few years down the road may not be entirely within your control.
5. Lack of Direction and Commitment
One more cause of real estate investment failure is lack of direction and commitment. Treat your real estate investments as a serious business and not a hobby. Hobbies don’t make much money, businesses do!
If you treat real estate investing as a hobby that you indulge in whenever you feel like it, you’ll get hobby results. If you set aside the time and treat is as a business, you’ll be able to earn a profitable outcome. For example, one of my seminar graduates made over RM1 million in profits by flipping over 10 properties in the last 5 years. He treats his property investments as a serious business sideline and his goal is to flip a minimum of 2 properties each year.
6. Neglecting Inspections
The sixth major cause of real estate investment failure is neglecting inspections. Buying old properties are riskier, compared to buying brand new from a reputable developer. Obviously, the older the property, the greater the risks. But the risk factor can be reduced when you take all the necessary precautions and budget additional expenses for repairs.
Professional inspections are a must when investing in real estate. You may find properties that seem like bargains to the untrained eye, but an expert inspector could discover thousands of dollars in repairs that are necessary to keep the property running. While inspections do add one more cost to the investment equation, they’re necessary to the successful real estate investor.
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