PART 1
I love this quote from Eleanor Roosevelt ….
“Learn from the mistakes of others. You can’t live long enough to make them all.”
Eleanor Roosevelt
And that is exactly the purpose of this article. I want to share with you some of the mistakes you can make when you look at property / real estate investing and more importantly, how to avoid them!
I am a massive fan of building up an investment portfolio and taking control of your own financial future and I am passionate about the subject. However, I am also a realist and I know there are a lot of things that can go wrong if you don’t equip yourself correctly. And we’re talking about real money here so I cannot urge you enough to do your homework before parting with your cash.
So without further delay, let’s get cracking ….
1. Lack of proper research
I am well aware of the expression “ready, fire, aim” and I often refer to it myself to make sure I am not procrastinating. However, there is a balance and when it comes to property (also known as real estate, however, for ease I am going to refer to it as property) investing you really do need to make sure your aim is correct. Purchasing property is a significant investment and it is not a liquid asset, and what I mean by that is it may take some time to sell if you find you have made an error. So be sure on what you are buying as you usually lock in your profit when you buy. Don’t jump in blind. Research what you want to buy; research the area, the type of property, the type of tenants, the type of finance you will use to fund the purchase. Research the local area – is there a demand for your product in the area you are selecting? There are all sorts of ways to research and build your case for buying a particular house in a particular area. This won’t take as long as it sounds but it does need to be done.
2. Failing to set clear goals
I am amazed at how many people don’t know what they are looking to achieve when it comes to property investing. In order to get from A to B we need to know where B is, that will allow us to plot the course. You need to know what you want to achieve, what lifestyle do you want and what commitments do you already have? I ask as these factors, and many more, will dictate the strategy you choose. It does all start with why and then we can move to how. I always enjoy working with people who have a clear objective, it often allows us to de-clutter the horizon with all the things that aren’t relevant. Strategy is key when it comes to property investing and strategy is built on clear goals. The more specific you can be the better. There are so many ways to make money from property, and ways to lose it! If you go into a shop without knowing what you are looking for you will spend a lot of time there and likely end up extremely overwhelmed. I have been investing for over 20 years and I have only really used a handful of strategies, however, I have gone deep and I know them really well. But then I was always very specific in what I wanted to achieve from property and I started with a clear why and what I wanted to achieve. Take the time to think it through. It’s also worth mentioning that when you hit the bumps in the road, and you will, having a strong thought through plan that relates to you and what you are looking to achieve will be a helpful backbone to lean on.
3. Losing track of the Numbers
One of the skills you need as a property investor, or you need to know somebody with that skill, is managing the numbers. The back of a napkin calculations are fine for big picture thinking, however, you are running a business here and at every stage numbers and budgets will be essential. The good news is this is a very learnable skill and when you get down to it it is very simple. However, the point I am making here is you need to be aware of the numbers. You need to stress test your investments when you are working out what price to pay. You need to understand the implications if some or all of your tenants don’t pay. For most houses you buy there will be an element of refurbishment – what’s the budget? More importantly, what does the budget need to be to make the investment hit the returns you set out? When you’re up and running is the cashflow performing as you forecast? If not, why not? Numbers are a great way to really analyse and crack down on your investments and it takes all of the emotion out of the process, numbers are numbers. Not only do you need to know them, you also need to know why you are looking at certain ones. Property really is a numbers game.
That concludes the first part of this article and will hopefully have given you a few things to think about. In the second part I’ll be exploring how you cope when things go wrong and what you can do on the way in to make the exit as smooth as possible.
Kelly Lemon
