We all make mistakes in life. They are how we learn, and as we pick ourselves up and move forward, we should have the benefit of hindsight to help us carry on and get one step closer to a better future. However, where money is concerned, we need to take extra care. This is especially true when investing your money. We will concentrate on property, but the same applies to any investment, including land and business. Making a mistake could prove to be detrimental to your finances, in the short and long-term areas of your life.
First-time investors are particularly prone to making mistakes. Wanting to become a property millionaire, they are liable to dive headlong into the process without fully knowing what they are getting into. If you are planning to invest, and have little experience behind you, a little knowledge and forewarning will help you get one step closer to a better financial future.
Here are some of the common mistakes made by first-time investors.
1. Having no clear vision
Investing in property may sound like a fantastic idea in theory, but you need to know your reasons for doing so. Like anything in life, you need to have a goal. Therefore, be specific with your vision. There are a number of routes investors take, whether they are building up a property portfolio to bring financial security for the future, or purchasing property to focus on more immediate financial obligations.
The biggest question here is this. What do you intend to do with the property? Are you buying something to rent out to others, or do you want to purchase something that you can fix up and make a capital gain? You can make money from both avenues, whether you are buying a single property, or building up a portfolio. Either way, there is a lot you need to take into account, so having a clear goal needs to be a priority before you spend your money.
2. Choosing the wrong location
Research is vital when deciding where you want to buy a property. You naturally do this when choosing somewhere to live for yourself, so you need to make the same decisions when buying something to let or sell. After all, you wouldn’t want to live in an area where there is a high level of crime, for example, and the same is true when you are offering your house to others. Like you, they want to live somewhere that is safe and practical, so walk around the local area and do some research online before you make a purchase.
3. Going global
Again with location, it has become increasingly popular for people to invest abroad, particularly when they are thinking about a home for their retirement. There are websites online, such as http://rumahdijual.com/pekanbaru/perumahan-murah that showcase a number of international properties, but you need to have a handle on the global situation. For starters, what is the political climate like? When investing for the first time, it is probably safer to buy something in the country where you live, before going wider afield. Otherwise, you will have to make lots of trips abroad to look after the property, and that will prove costly.
4. Acting in haste
You don’t want to miss out on a great deal, but don’t sign a contract before carrying out significant research. What might seem like a good investment at the time, could turn out to be a potential money pit, despite the assurances of the seller. When investing for the first time, you need an experienced mentor to hold your hand and guide you through the process. There are companies online, such as http://thepropertymentor.com, who have the people available to help you make the right decisions. In short, don’t run before you can walk.
5. Deliberating for too long
We have told you not to act in haste, but if you deliberate for too long, you may miss out on potentially fantastic investment opportunities. When investing for the first time, it is logical to be a little cautious, but you will never get anywhere if you continue to dither. At some point, you will need to bite the bullet and take the risk. Again, an experienced property mentor will help you make the right choices, without you getting into a cold sweat every time you open your wallet.
6. Not having financial backup
Buying a property is very expensive, so you don’t want to blow all your money on something without having anything in reserve. For example, you may be buying something to rent, but there is no guarantee you are going to move tenants in immediately. It takes a while to find the right people, whether you use a property agent to act on your behalf or meet prospective tenants yourself. Then there are the ongoing costs after purchase. Some of them are listed at http://onproperty.com.au/ongoing-costs-when-owning-a-property. Therefore, ensure you have money to fall back on, at least for the first year, to help you cover expected and unexpected costs after purchase.
7. Not getting the right financing
The advantage of getting a mortgage is that you get to invest with money that isn’t your own. On the one hand, this reduces the risk of running short as we mentioned previously, but there are still potential pitfalls ahead. You will still need to pay back the mortgage, as well as dealing with the ongoing costs of the property. Then there is the interest rate to factor in. Therefore, shop around before securing any financing. Compare bank rates online, using sites such as http://www.bankrate.com/compare-rates.aspx, or research your local branches and speak to an advisor before signing any paperwork. Again, due diligence at this stage will reduce any financial pitfalls in the future.
8. Self-managing your property
You will be keen to cut down on costs after making your investment, but if you intend to rent, you avoid using a property management company at your peril. You may be able to handle one property, but if you build a portfolio, you are going to face a lot of hassle day-to-day. Read this, http://www.managemyproperty.com/articles, as it highlights the benefits of hiring a property manager to look after your investment. From dealing with problem tenants to finding tradespeople to take on any essential maintenance issues, letting somebody else deal with the daily management will give you the opportunity to relax and enjoy the benefits of your investment.
9. Failing to understand the housing market
This is a biggie, as the value of a property can fluctuate depending on the state of the housing market. You don’t want to run at a loss, but even if you have added value to a property, there is no guarantee you will make a significant profit if there is a fall in the economy. You need to do your research, such as speaking to a real estate agent who will have his finger on the pulse. Check this site, https://www.nerdwallet.com/blog/understanding-housing-market/ for other helpful information regarding the housing market. It pays to know what you’re getting into.
As we said, mistakes do happen, and there will be bumps along the way. Should you run into financial difficulty, it doesn’t mean your days as an investor will end. We gave you advice at
Piggy Bank Dreams, on getting out of sticky financial situations, but be transparent with your bank should you run into difficulty. In the meantime, do your planning, know your goals, and embark on research as you begin your investment journey.