When starting anything in any field of human endeavour, making mistakes is part of the learning process. Real estate investment is no exception. However, it is possible to minimise our mistakes by learning from the mistakes of several successful real estate investors and what they did to avoid such mistakes. Since real estate investment is diverse, our lessons from the lives of several experienced investors will cover the different aspects of this sector. None of these approaches is cast in iron and this list is by no means exhaustive. They are common sense guide as to what others have successfully implemented. You can adopt, reject, modify or customise, as the case may be.
Many new real estate investors have downplayed the importance of location in favour of price. Price is very important but value is more important. I recollect an investor whose primary consideration when it comes to buying a property is the price of the property. The way her mind works is that if the money she has can buy two properties anywhere in a city, why should she spend the money to buy a single property anywhere? It took a while for her to understand that sometimes one well located property could match in value a combination of three properties in the wrong locations. It is not the number of properties and the total price that matter but the value.
One of the common mistakes that new real estate investors make is to engage artisans or workmen during the construction or maintenance of a building and pay them in full or make the materials needed available to them on site. The thinking of most investors who decide to take this route is that it will make the work faster. While this may be true, it is often an encouragement for waste and inefficiency. It also gives room for unscrupulous artisans to steal. A better approach is to release project funds in stages based on accomplished work.
Some investors, either at the point of buying or selling a property make the mistake of disregarding the market in determining how much to sell or buy a property. When it comes to selling a property, this is especially true in cases where the seller has spent so much on the property and must have developed a sentimental attachment to the property. These investors make up their minds on how much they expect to earn from the property, irrespective of the market rate. The fact is that every location of a property has an average price range. It is better for you to rely on the advice of an estate surveyor and valuer than your subjective opinion. It is possible for you to price yourself out of the market. And if you are buying, set a realistic price range based on the location that you desire.
A common mistake when it comes to investing in rental properties is not to focus on what really matters. In rental property investment, what really matters is getting a tenant that can afford to pay the rent regularly. It is better to get this right at the beginning. When you have a process in place for screening and approving tenants who desire to lease your property, you minimise the risk of giving your property to a wrong one. When you ask for references, take time to verify them.
One of the risks that an investor in rental property faces is damage to the property or having outstanding or unpaid utility bills. If these are not prepared for, the property owner is forced to pay for all these out of his or her income.
One approach that has worked is to take an inventory of the property before the tenant moves into the property and have him or her sign the inventory. In addition, the payment of a caution deposit helps to settle any cost incurred by the property owner on the repairs of the property as a result of the tenant’s actions.
Failure to think about what could happen to your investments in the event of your death
We all know that death is one of those events that we don’t really know when and how it will come. Many hardworking investors have lost their investments as a result of failing to plan for this eventuality through writing of wills and making sure that their investments go to those they really want as beneficiaries.