Personal finance tips and advice on money and investing to increase your financial intelligence and welfare

Top 5 Errors First Time Property Investors Commonly Commit

Granted, the internet and media offer an abundance of useful information regarding the real estate sector and property investment. However, while the data is out there, very few entrepreneurs actually comprehend it and make good use of the available info in the property investment segment. This is the main reason why from the high numbers of new real estate investors, only a few of them successfully handle their first transaction. In addition, even from the aforementioned category, even lesser individuals will be able to create real wealth. The issue here does not come from the fact that they are not motivated enough, but rather because it is easy for first time investors to make the following common mistakes.

1. Making decisions based on emotions

If you are simply searching for a home where you can start a family and make it your sanctuary, then it is perfectly understandable why your decision will be mostly based on emotions. However, as a property investor you simply cannot afford to fall into this trap, as you will be more concentrated on over-capitalizing on the asset rather than focusing on negotiating the best price for the property. In other words, if the prospect house/apartment cannot provide gains, returns and attract quality tenants, you have no reason to invest in it.

2. Impulsive buying

While in theory the real estate investment segment seems rather simple and straightforward, in reality it is much more complicated than purchasing property and upgrading that house. In spite of the fact that you think you understood the ropes of the market, it is best to refrain from impulsive buying as that is certainly not going to bring short or long term benefits.

3. Being excessively cautious

At the opposite pole of those who think they can become millionaires over night reside the people who are overly cautious and never have the guts to act. It is important to note that while an impulsive buyer could actually learn from his mistakes at some point – providing of course that he is still motivated to invest – the precautious type might not ever be able to overcome his own fears. As an investor, you need to be able to analyze risks and assume them when the situation calls for it.

4. Lacking patience and expecting money overnight

Because property in general is perceived as a good everyone needs, some first time investors falsely think that investing in properties is the answer to their debt and money issue. Considering that buying/selling a property is not exactly easy and that you need to make constant investments to attract tenants/buyers the real estate is not the industry to make you rich overnight. The best approach is to be patient and follow a well-established long term plan if you want to make it to the top of the property ladder.

5.Not understanding the importance of cash flow management

While purchasing a property will usually require a decent sum of cash, the costs associated with being an investor do not stop here. In addition to the initial funding you also have to account for costs associated with contingencies, land taxes, insurance, loan rates, maintenance and management fees. 

Patrick Armstrong is a real estate and investment blogger. The company develops beautiful apartments in St Kilda and nearby locations.