When it comes to property investment, there’s loads of information available through the website about what investors should do in order to ensure a profitable investment. Many investors begin with the intention of making it big in real estate but only a handful will get past their first investment and even less will create real wealth by climbing to the top of the property ladder. There are plenty ways to build wealth by creating a profitable real estate portfolio and you will need to go through lots of learning and it will require lots of patience, research, time and hard work!
I once heard “Investing in property can be the pathway towards financial freedom or financial ruin! So, let’s explore some common mistakes that you should try and avoid when considering your property investment.
They ignore timing. When comes to property investment, “Location, location, location” is always the word in everybody’s mind but in fact, it’s not the only key point that we should focus on. Savvy real estate investors know that the real key to building wealth is “timing, timing, timing.” All real estate is cyclical, and understanding the dips and peaks can mean the difference of thousands in your pocket. By selling too early, you will be missing out on the next cycle and property growth period.
If you can see with clarity what was going to happen in Malaysia housing market over the next few years, you’d know exactly the right time to BUY and SELL to gain the maximum profit from your investment. So, my question to you is, do you know where we are right now in the property cycle? If you would like to find out more about the Malaysia’s property cycle, click here.
Not doing your homework
Understanding property markets takes time and efforts so don’t think you can attend a few seminars or read a couple of property books and you can know exactly what to buy. Many investors jump right into major financial purchases without investing any time at all in research and knowledge. To ensure profitable investment, you need to know the neighbourhood you intend to invest in like the back of your hand by talking to the locals or real estate agents in that particular area.
Besides that, do some research on the upcoming infrastructures, attractions and amenities nearby, analyse the current vacancy rates and also the historical values of the properties in the area. In addition, make sure that there is a potential for growth in the future.
Poor Cash flow Management It’s rather easy to fall into the trap of poor cash flow management as a new investor. Understanding all of the costs involved in acquiring and holding property can be difficult and you should always seek the advice from the expert who knows about real estate investment to ensure you know exactly what you’re getting into financially and be prepared for that.
Some of the key things is that, you need to make sure that you can afford to hold onto any property you buy. You need to do some calculation on how much income your investment will generate and will it be sufficient to cover your outgoings. And if not, can you manage any shortfall? You need to make sure that you examine each potential investment analytically and always set aside some funds for any contingencies, such as extended vacancy periods, unexpected repairing or maintenance costs.
A good rule of thumb is to allow about 10% of the property’s value for costs such as maintenance, management fees, taxes and insurance.
Furthermore, having the right lender on your investment team is crucial. By understanding your long term investment objectives up front, an investment lender can make sure that you are qualified for the right loan programs to meet your investment objectives, as well as making sure that you have extra funds available when you need them.
Saving by self-managing
You’ve done all the research and groundwork and secured the perfect property investment and now the hard work really begins!
Most of the investors think by self-managing their portfolio such as finding suitable tenants for the properties, collecting monthly rents, dealing with maintenance issues, monthly inspection etc will give them a greater profit but in fact, it is always not the case. Think for a second, what will happen if you have a portfolio of say 25 properties? Are you able to manage each and every of them?
Personally, I didn’t think so.
A better way to deal with this is to engage a professional property manager to handle all of these things on your behalf. This will ensure that you will get the best outcome for your rental property in terms of a good tenant and the best possible returns with prompt monthly payments, and most importantly, it will save you a lot of your TIME! All of that time spent managing your properties could be put to far better use such as finding more investments to add to your portfolio and generating even greater wealth.
Focusing only on rental returns You need to always make investment decision based on your personal financial situation. Focusing only on the rental returns is not always the best strategy. You need to question yourself, what are your future plans and goals? How long do you plan to invest (is it for short term or long term?) and also if the times are bad, are you able to cope with the mortgage repayments if you couldn’t find a tenant for your property. Always do the calculation before invest!
Being emotional Always remember that your investment property is not buying a home as a personal residence and you should not make any investment decision based on emotion such as attracted by the show unit, colour of the walls, bigger kitchen, great discount offered despite higher selling price, properties with ocean view, freebies from developers, purchasing property based on advice from friends and family members rather than using research etc. The main goal for your property investment is to create greater wealth for your future and to provide passive income so your main consideration should be rental yield, capital growth, demand and tenant quality. Always stick to your parameters and the fact and figures! Using logic and research instead will reduce the risks of investing and maximise your chances of successful property investment.
Procrastinating
The most common mistake people made is procrastinating and not doing anything at all. Take a second and think about this, if you do nothing:
Will you have anything in the future to show for all your hard work now? Are you able to have passive income in the future during your retirement age? Do you have enough money saved for 30 years of retired life?
All success requires action! If you are really serious into property investment, take your first step by reading more blogs or articles related to property investment, attend some of the seminars and workshops to network with like-minded people and soon you will have the courage and support to start your investment journey.
Purchasing incorrect type of property and without diversification
There are different types of properties available in the market but usually a good investment property is one that attractive to a wide range of tenants, which will rent for long term and one that has a low maintenance costs. Some common mistakes to avoid is that only focusing on purchasing older properties because they are much cheaper. It is always better to do some inspection on the existing condition of the properties and do some estimation on the maintenance or refurbish cost before making any purchase decision. Take those cost into consideration on determining the rental yield.
“Do not put all eggs in one basket!”
I’m sure this is pretty common to everyone. When it comes to property investment, try not to purchase all investment properties in same geographical area. You need to diversify your portfolio, which helps you to reduce risk and allow investors to take advantage of various property markets in different stages of their growth cycles. Do consider some good overseas investment in places like Australia and UK but of course for overseas investment, you will always need to consult the experts that are familiar in those areas so that they can give you a better understanding, overview of the property market of the particular country, complete purchasing procedure and finally any tax implications.
Many people get into property investment hoping to become overnight millionaires but the fact is don’t expect to “get rich quick” in real estate. By approaching property investment with patience and persistence, you will definitely gain more success and wealth. Securing proven, high performing property that grows consistently over the long term is the only way to ensure you make it to the top of the property ladder.
Learning from others and their experiences has enabled me to fast track my journey to where I am today. After reading this article, I hope that you will be able to apply some of these learning in your property investment journey which will help you to create a profitable investment portfolio that delivers the real wealth for your financial future.
Happy investing!
「If this article is useful to you, feel free to buy me a coffee ☕」
Danny KO @ RPC
If this article is useful to you, feel free to buy me a coffee ☕
