Do you want to make enough money out of real estate so that within a few years’ time you’ll be able to pay off your own home, buy a boat, or retire?
If you answered in the affirmative, I’ve got disappointing news for you: it’s not likely to happen
Real estate investing is a great long term strategy for making money.
Long term doesn’t mean 12 months – but it could mean 12 years, or so.
It’s about doing something now to create wealth for later.
Quick profit from real estate is not the norm, and if that’s your plan then you’re on the right track for some big disappointments.
What’s your end game?
It’s critical for those taking on their first property to understand the bigger picture of investment.
It’s important to understand why you’re getting into property in the first place.
What’s your “end game”?
It may be to retire at 50; to be a self-funded stay-at-home parent; to finance a business venture; or to help your kids into their own home.
Why is this so important?
Because you’ll hit a lot of speedbumps along the way, so it’s important to remember the ‘why’ when things might not be going smoothly.
When investors give up after their first hurdle, they essentially become so discouraged that they change their end game, because they think what they’re trying to achieve is impossible.
Perils and pitfalls are common in the property market (let’s not forget, there is plenty of success to be had too!) and it’s usually those investors who aren’t clear on their goals who are the first to panic and sell.
I’ve seen investors with a solid plan who never move past one property, and I’ve seen others sell their single property investment out of fear.
Here are the three big mistakes seem to be responsible for some of the most common hurdles that new investors run into:
1. Failing to do your homework
The number one, absolute rule about property purchasing is to do your homework first.
Would you buy a new car without checking the specs, reading reviews, taking it for a test drive, running a VIN check, working out the expenses and finances, and looking at a whole variety of models first?
Of course not – and the same principles apply to property.
Not researching every aspect of the investment and (and generally will) cost you in the long run.
There is no such thing as a silly question when it comes to purchasing property.
Research the neighbourhood, grill the real estate agent or the investment advisor.
Does the property tick all the boxes for location?
What’s the anticipated future growth for the area?
Are rental values in the area increasing and are vacancy rates tight?
Has the property got the potential to add value through renovations?
Don’t be disappointed if finding the right property takes a while.
It’s better to wait for the right one than to dive in on a ‘maybe’ property with your fingers crossed.
And if you do buy a lemon, talk to your expert team (see my next point) about a devising new strategy – there are several options for dealing with a poor investment.
Giving up is not one of them.
2. Forgetting to consult the experts
As a beginning property investor, if you’re the smartest person in your team you’re in trouble.
The best thing about having an expert a phone call away is that they can help you through all the ups and downs.
They are your all-important A-team for guiding you through the research process and helping you make wise investment decisions.
Just as importantly, they are there to help you navigate your way forward when you are feeling out of your depth.
You’ll likely need a trustworthy and knowledgeable and independent property strategist, a non-affiliated mortgage broker and a tax and structuring advisor.
Make sure your team are true experts with experience who’ll be able to help you avoid common investing and finance mistakes.
They should have successfully invested through a number of property cycles and be able to advice you regarding some of the mine fields ahead.
Sure I’m biased, but I think you’re foolish if you don’t get a buyer’s agent on your team.
3. Giving up when the money flows out more than it flows in
This is probably the biggest mistake I see inexperienced property investors make.
Property investing doesn’t come with a foolproof guarantee of success – and sometimes, the unexpected happens.
The lesson is to overestimate, rather than underestimate, the expenses of your investment.
Building a buffer into your finances will give you wiggle room when the unexpected occurs – whether it’s a vacancy period, an air-con unit that needs replacing or myriad other issues that can crop up when you’re a landlord.
What if the garage door breaks, the oven catches fire, or the patio roof falls down?
Alternatively, you might find yourself owning property in a rental market that suddenly dips, forcing to carry more of the financial weight of the property than you expected, until the market evens out again.
When investors are forced to find another $50 or $100 a week to hold their property, it can cause them to fret that their investment is costing them more than its making them, which makes them want to jump ship.
The reality is, every property investor– even the most successful ones – face these types of setbacks.
All of these situations are within the parameters of normalcy for property investing.
Remember, it’s better to be on the field than on the sidelines.
Far too many investors quit before they’ve given it a real shot, which is the only way to guarantee you’ll never make money through property.
Don’t let fear or discouragement keep you from the strong financial future you desire.
It’s also important to be realistic and prepared for the ups and downs, the wins and the losses and the good and bad times ahead.
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
NEED HELP LISTENING TO MICHAEL YARDNEY'S PODCAST FROM YOUR PHONE OR TABLET?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.