The Big Mistakes That First Time Property Investors Make
Property investments are so popular right now because house prices are on the rise and that means that more people are renting instead of buying. If you own a property, that’s great news for you because it means that there are more tenants to fill your properties and you can charge higher levels of rent. That’s why there are so many people out there that are making huge returns on their property investments.
However, this success has led to some big misconceptions about investing in property. A lot of people assume that it’s an easy way of making money and the only barrier to success is finding the money for a deposit. There is a misconception that you can’t fail and once you buy a property, it will be easy to find tenants to fill it and then you can just wait for the money to roll in. It would be great if it were that simple, but unfortunately, it isn’t. Just like any other investment, there are plenty of people that lose money because they make some simple mistakes. This can happen quite easily with property investments because people rush into it thinking that they can’t fail. If you are considering your first property investment, make sure to avoid these common mistakes that first time investors make.
Thinking of It as a Hands off Investment
This is one of the biggest things that people get wrong about property investment. They think that all of the hard work comes during the early stages when you are buying and renovating a property. They assume that once the tenants are moved in, they won’t have to do that much at all, but that isn’t the case. There is rent to collect every month and tenants will not always pay up on time. Then you have to deal with any issues at the property and carry out maintenance and repairs when needed. This all takes time and costs money, and a lot of first time investors are not prepared for that. But if you don’t manage the upkeep of the property, you will end up with some very disgruntled tenants and a reputation as a bad landlord that doesn’t look after their houses. If you want to invest in property but you don’t want to handle the day to day running of the investment, you should find a property management company to work with (look at ihpropertymanagement.com for more information). They can handle all of the rent collections and the repairs for you. While this may eat into your profits, it will ensure that the property is kept in good condition and the tenants are happy, and you can have the hands off investment that you are looking for.
Chasing a Hot Market
When house prices in a certain area are rising rapidly, you may think that it’s a good idea to put your money into a property. The logic makes sense because if the prices are rising then your investment will increase in value very quickly. However, it’s important to remember that house prices can be unpredictable and they may drop. Prices may be rising because a lot of investors are putting their money into the area, and you are just following the crowd. But that growth will not necessarily be sustained and the prices could drop in a matter of months. Instead of making a rash decision based on a short term price increase, you need to find areas where prices have been steady over a long period. This is a much safer option and you are far less likely to lose money.
Chasing a hot market isn’t sensible, but at least you’re making some attempt at analysing pricing trends. A lot of first time investors don’t even do that, and it’s those investors that usually end up losing money. It’s important that you understand the overall property trends in the country, as well as local trends. Rising taxes, for example, is causing a slow down in property investment in a lot of areas. Some landlords are instead buying properties in the north where prices are lower. The impact of political events like Brexit will also cause some big changes to the property market. These trends will affect you if you are investing in property, so it’s vital that you are aware of them.
Local trends are very important as well because they can help you to decide which locations are best and what type of property you should buy. For example, if a neglected area of the city is seeing a lot of investment and attracting a lot of new businesses, now might be a good time to buy a property there before prices start to shoot up. But what kind of property should you buy? To work that out, you need to consider the type of people that are attracted to the area. If there are a lot of young working professionals, buying a one bedroom flat is a good idea, but a large family house is not. Before you buy a property, spend some time studying the trends and speak with a local estate agent so you can make a more informed decision.
Ignoring the Risks
Like any investment, there are risks involved with property investment, and ignoring them is a big mistake. If you go in with the mindset that you can’t fail and you put everything you have into this property, you will be completely unprepared if things do go wrong. There is always the chance that house prices could fall and your investment will decrease in value. The cost of renovating the house may be a lot higher than you initially anticipated and if you don’t have extra money set aside to pay for it, you will be in big trouble. You need to weigh all of the risks and make sure that you can survive if things don’t go your way.
If you want to start investing in real estate, it’s vital that you avoid these common mistakes, otherwise, you are likely to lose your money.