The Top 7 Mistakes To Avoid As A Property Investor
Last updated 27th April 2020 • Lois Arcari • JaeVee
Even if you're the most experienced investor, everybody makes mistakes.
This blog will give you the most comprehensive information possible around 7 common property investment pitfalls, and give you an idea of how to avoid them.
So don’t delay, read on to realise what mistakes you should avoid.
1. Sitting on the fence
Almost all of the worst practical mistakes can be corrected or learnt from experience.
But this involves a whole mindset that needs changing.
You can’t turn your dreams into reality just by dreaming them. You’ll need to take action.
You owe it to yourself to have a rough plan and create your own concrete goals. SMART Goals that take into account your lifestyle and financial aspirations.
Whether you read up on lots of posts like this one, watch as many YouTube videos as you can get your hands on, or sign up for a course like ours, it’s an act of bravery and wisdom to leap off the fence.
Just make sure that once you’re in the investors seat, you carry this wisdom forward.
It’s essential to do due diligence, but be wary of over analysing every situation to the point that you can't get your projects off the ground.
Anyone who wants to be an investor shouldn’t be scared of risk. Without risk, there wouldn’t be reward.
No property gets made by people waiting to begin.
Investing is all about taking a calculated leap and being prepared to deal with whatever problems may come up.
You can’t prepare for every possible outcome.
But you can build a resilient mindset that means you will be able to take whatever happens in your stride.
2. Going it alone
Since there’s plenty of high quality courses and information online it’s easier than ever to believe all you need to start your journey is an interest in property and your wits about you.
But while it’s always good to be ambitious and independent, no one lasts long in this game alone.
Even when you’re studying the basics, you don’t have to limit your learning to the confines of your room.
As well as using the hundreds of free and paid for resources online, you should always look to get words of wisdom for free.
Surrounding yourself with experts is both invaluable and inexpensive - you could simply search through LinkedIn and connect with local investors.
You could set up a Skype interview or even offer them a coffee to talk over their expertise with.
Learning from them and their mistakes is perhaps the most valuable way to avoid making your own.
Let’s not forget that building your own professional team is essential for every investor.
You’ll need to create great relationships with at least one estate agent, a mortgage advisor, the architect, builders, insurance advisers and many others.
And don’t forget the remodelling and maintenance - your plumber, electrician and other contractors are also necessary.
Everyone’s necessary, from your mortgage partner to your cleaner.
You’ll need all the help you can get - and you’ll never build your business if you have to spend your time mopping up leaks alone! You might think you’ll save by cutting a few costs on personnel.
But this is quite literally a false investment.
Not using professionals will cost you so much more in the long run. There’s no use saving in the short term if it will only make your property less enticing for your potential tenants. The property professionals are fully trained and qualified. They spend their working lives perfecting property developments.
Why wouldn’t you want to use them?
3. Thinking it’s a get rich quick scheme
The more unscrupulous people in the industry often sell investment as a get rich quick scheme.
There have always been plenty of ‘gurus’ who make infomercials that make property investment seem an easy way to make money on the quick.
And with house prices still at a steady incline despite Brexit, it can seem that all their too good to be true posturing could actually be true.
That’s why it’s important to make sure all the information you’re getting is balanced and mentions the pitfalls as well as all the potential. Property might be a great investment, but there are plenty of good opportunities - and you need to work hard at all of them.
Hard work is always the kicker for if you do well in any type of business. It might not always pay off immediately, but it will certainly see you better in the long run.
You have to be willing to put in the effort on a daily basis, and you have to make intelligent decisions, and figure out your risk tolerance.
But you have to avoid the temptation of listening to the gospel choir, whether you’re looking into this business as a retirement investment, or you’re fresh out of education and looking for a lucrative industry.
Whatever investment you’re starting off with, you shouldn’t buy blind.
You wouldn’t buy shares in any standard company without thorough research first - why would property be any different?
Take a good hard look at all your investments and their potential to seal your chances of success.
It’s also all too easy to follow market trends.
But make sure when you’re researching them, you always look with a critical eye, and try to measure how it’s performed over a good few years, not just in the year you’re looking to invest in.
Make sure you view the bubble from all sides, just in case it bursts. It follows that a fast rising market can also fall fast.
Make sure you’re making investments off your own intelligence, rather than just following the crowd.
You also have to prepare a number of exit strategies outside of just selling or renting.
For example, if your plan A is to flip (buy, refurbish and sell) the property, then your plan B could be to offer a lease purchase to a buyer or wait and rent it out. Plan C could be to sell the property wholesale.
4. Not doing the maths
This might seem like the most obvious one on the list. But when you’re looking for high quality professional advice make sure you don’t pay too much for it.
Avoid anyone making big promises for a ‘small fee’ and instead go for proven professionals who will give you measured advice for free or an industry standard price, depending on the nature of your advice.
You’ll want to invest quickly, so you don’t see potential properties dry up.
But you shouldn’t pay over the odds for the first good deal you see.
You’ll naturally want your builders to get your property up on the market as soon as possible - but make sure that you’re not paying more than what’s fair just to get a quick turnaround.
Paying too much is the reason that investors get surprised with the nasty shock of not making any profit.
Going thoroughly through the numbers is crucial to work out how profitable your investment could be.
You should identify any potential risks to your bottom line and work out mitigation strategies for anything that could undercut your profit potential.
Your investment should be thoroughly stress tested - remember to factor in other costs and losses such as void periods, stamp duty, letting agent fees and maintenance.
You’ll also have to have sufficient cash flow to cover maintenance if your preferred strategy is to buy, hold and rent the properties you invest in.
Of course property managers are a good investment, but in order to get the best value for your money, you’ll have to research how they work and even interview a few in the flesh.
5. Location never lies
The location can make all the difference.
It’s no use investing in the most amazing property on the block if the block is somewhere no one wants to live.
There are plenty of ways to assess the area that you’re looking to invest in.
You can read up on news reports and try to track down any similar investments happening in the local area.
But don’t forget how important local knowledge can be. You can understand the area better by speaking to estate agents and locals alike.
This will give you vital information on the areas that people most want to live in, so you can invest there.
It's generally a good bet that most potential tenants will look for some combination of these:
- A quiet area
- Commercial amenities
- Convenient transport
- Good schools
However, as long as you know the property has good rental potential, and the investment numbers all make sense, you don’t have to tick all the boxes.
Another pitfall to avoid is getting started by investing in property in an area where prices are starting to fall. Think twice. Your property should always have good potential appreciation in the coming years.
You might think you’ve done enough research to ensure that you know the prices will pick up again, but there are no guarantees in property.
It’s also a good idea to check the current and projected population and their average income.
If there are not enough potential buyers willing to buy at the price you need, then prices will usually keep dropping.
Instead you should always look for areas where demand is growing faster than supply so that prices can be pushed up.
6. Putting your heart before your head
At its heart, every house needs the potential to become a home - and when you’re looking through the eyes of your potential tenant, this is definitely something to consider. But when you’re back in the investor’s chair, it’s all back to the facts.
It’s all very well falling in love with a place, but there’s no use sinking your money into a problematic property with ‘character’ unless you’ve been reassured about the potential gains.
After all, you won’t be the one living there!
Don’t let your emotions leave you out of cash.
It also goes the other way!
Just because you might have some nitpicks with the decor - which will be changed anyway - you shouldn’t walk away from an investment with great potential.
You have to keep an open mind.
How cost effectively and quickly can you add value to the property.
Is there anything you won’t be looking for, but that your potential tenants will crave?
Property is highly likely to be the biggest and most expensive asset you’ll ever purchase - so put the bottom line first to avoid a nasty fall.
Stick to cold hard facts, its an investment decision and should be based on your budget and the return it can provide.
7. Don’t stop thinking strategy
There’s no denying that property is a risky business. But if you can never completely cancel out that risk, what can you do?
It’s all about your strategy.
If you’re interested in investing in buy to let, then timing will be everything. If you want to live off the profits of your property, then you’ll need to maximise your rental income so that you can ride out market fluctuations.
There’s also an element of anticipating and planning for problems so that you can control the damage if and when they happen.
There are various factors which could suddenly turn a profitable property into a liability that just produces a negative cash flow.
Have a close look at interest rates, for example - large rises also increase monthly mortgage payments, which reduces your potential gross profit.
Another thing to consider is the likelihood of a property market crash.
Although all the latest prophecies about Brexit, per say, have so far been proven to be more doom and gloom than based in reality, nothing’s certain.
Once your building is on the market and all the deals are sealed, you can’t just rely on the property to take care of itself - the hard work’s not over yet!
The property is your asset, and as such, it’s yours to take care of. Make regular inspections and keep on top of maintenance.
So there you have it.
While no one can avoid making mistakes, we hope we’ve given you the knowledge to avoid the worst ones.
Are there any mistakes you’ve made that you think need to be discussed?
Or perhaps you have a story about how you turned a mistake into a success?
Let us know your opinions on our social media!
Please note this blog post is not to be considered as investment advice. We recommend you seek independent financial advice and conduct your own due diligence before making any investment.