Investing in real estate is fraught with just as much uncertainty as other forms of investment. Without a well-thought-out strategy and proper knowledge of the playing field, new investors can lose money easily. Buying property requires a huge capital and a positive cash flow. To prevent disappointments, some of the major mistakes that should be avoided by real estate investors, when planning to deal with property, are described below (in simple terms!).
(1) The lack of planning
As in all other ventures, planning is important when investing in real estate. The lack of a plan can prove to be quite costly. You cannot assume that you will work out a strategy to dispose of your property as you go about buying it. Planning in advance will help you identify the issues that may come up while dealing with the property, and devise ways to deal with them.
(2) The lack of research
Before investing in real estate, you should do your homework properly. Buying property without conducting research will most likely result in losses. Proper research can not only save you a lot of hassles, it can also help you make good money. A mistake that many new investors make is that they get emotionally attached to the property that they have bought. They tend to fall in love with the building or attribute sentimental value to it. A house or any other piece of property should be viewed only as an investment, and not as a transaction. It is not a one-time deal, but something that will bring handsome profits when sold.
Before buying a house, investors should obtain information as to why the owner wants to sell it. The state of the house should give an indication about whether it is going to be a sound investment. If the fixtures inside the house are in good shape, it is a better bargain. The locality in which the house is situated is also important. The value of the house may vary depending upon its proximity to a commercial area or other housing complexes. It may not be a good idea to buy a house that is situated in a flood zone or a termite-infested area.
All documentation related to the house such as building permits and financial papers should be authentic. All these factors affect the resale value of a house. If the house cannot be sold, the investor’s capital remains engaged in it and no profits can be made.
(3) The idea that you will get rich quickly
Buying and selling property is not a “get-rich-quick” scheme. There is a lot of hard work and a certain amount of business acumen involved in executing a good deal. There is also a considerable amount of risk involved in the process, and you should be ready to take a hit if the deal falls flat. Putting in a large chunk of your savings in an investment with the hope of doubling your money may not be a wise step.
(4) Paying too much
If you have done your research beforehand, you can avoid falling into the trap of paying more than necessary for the property you intend to buy. New investors tend to overbid because they are anxious to get the property that they want. In the process, they could lose money since their profits are locked in the low-value property which does not sell for a good price later.
(5) The tendency to do everything single handedly.
This is especially true for people who have just begun to invest in real estate. It is a good idea to take the help of professionals such as real estate agents and lawyers, who have the know-how and the experience to guide you through a reasonable deal. Also, once a house is bought, you might need to get a lot of work done in the interiors with the help of carpenters, plumbers, electricians, and other maintenance men. Delegating work to professionals reduces the stress on you and leaves you free to concentrate on other aspects of investing.
Although it may sound like an attractive and easy investment option, real estate also has its advantages and disadvantages. You should not venture into this field without sound groundwork. It is important to be patient and keep your expectations realistic.