Property investments are sometimes, wrongly, listed as a secure way to become a property millionaire. In reality, the odds of becoming rich from real estate investments are made incredibly low by the number of mistakes that newcomers to this kind of investments are guilty of. To succeed in this difficult money making business, it is essential to avoid costly failures on the way. Start by making sure to stay away from these risky five:
#1. Emotional choice
When you buy a property, it is a choice that is naturally influenced by your tastes as much as by your economic interests. However the ratio of heart over head should remain manageable, 10% heart over 90% head, and not the opposite – which is a common mistake for first-time investors. When you are hunting for the right property – to move in or for investment purposes – you need to keep the balance between listening to your instincts and following the voice of reason. However, to ensure that you keep the balance on the reasoned side, you need to work with professionals to undertake thorough home inspections. As a rule of the thumb, you will need two to three home inspections so that you know that you haven’t missed anything.
#2. Diving in or dithering
What kind of decision maker are you? Someone who dives in to buy at first sight of a pretty picture or someone who researches at length every possible document and can’t decide when to buy? The problem of the property market is that you should be able to come to a happy compromise between researched decision and intuition. This requires sufficient analysis, however, if you fall into overanalysis, you may end up dithering forever. You need to accept that you will have a reasonable amount of doubts when you decide to buy a property. However, it’s exactly why working with professionals and investment advisors can help you to prepare for any what-if situation.
#3. Lack of patience
When you choose to invest in property, the long-term purpose is naturally to generate a passive income and grow your wealth. However, one of the most common risks in the property investment market is to lack patience and want to buy or sell your property at the wrong time. The market fluctuates. Making money out of properties relies on your ability to buy when prices are low and to sell when they are high. This requires patience, observations and knowing what a property needs to attract buyers, or tenants if you prefer to let.
#4. Poor cash flow management
Cash flow is at the core your investment success. Managing your cash flow means that you have positive financial leftover once you’ve deduced your expenses from your property-related income. A positive cash flow is key to prepare for the market fluctuations before you can sell your property. A neutral cash flow is unlikely as most investors have either a positive or a negative cash flow.
#5. Wanting to save money with self-management
It can seem a good idea to save money by doing it yourself, aka by managing your property portfolio on your own. Except that you are unlikely to save any money at all. Indeed, portfolio management requires legal and administrative knowledge, as well as close observation and analysis of the market. Unless you are a financial expert yourself, your best bet is to work closely with an advisor.
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