The beginning of any investors isn’t an easy one. You have to know what that business is about, how it generates money, and can the business expand in the foreseeable future.
This is applicable to being a property investor.
Being a property investor requires you to attend classes, get to know your mentors, and people who are successful in your respective investing fields. You would have to continually learn and apply the knowledge you obtained – constantly experiment and adapt your techniques around the market.
Why is this vital?
Certain people would think they are ready when they have attended one class but once is never enough. You must constantly learn (attend many classes) , talk to field experts, and mingle within your investing team members.
Hence, here are the top 8 biggest mistakes property investors make:
1. YOU BUY PROPERTIES ACCORDING TO QUALIFICATIONS AND NOT AFFORDABILITY
Well, many of us are happy when the bank loan officer approves our bank loan. Your salary plus side income seemed decent, your liabilities are pretty low – so he thinks, ehh why not…. But the monthly installment would take away more than half your salary?!
Is that a red flag? Should you worry? … The answer is – yes!
A safe principal to follow is 30% – 35% (where 1/3 of your total salary) of your total salary would go to payment of home installments. This is because 1/3 of our salary should go for savings, 1/3 to daily needs like foods and transportation, and another 1/3 for commitments and/or investments.
It is safer that way rather than having 2/3 of your salary dumped to pay your home. Well, some people can live under strict financial diets but what if emergencies happen? How would you survive? Worst off if you have kids! So buy properties that you can afford and not what you are qualified to buy.
2. YOU THINK YOU CAN FLIP (SELL) A PROPERTY RIGHT AFTER YOU BUY ONE
This is one of the dangerous tactics in the books of property investments. You think you can sell the house you just bought right off the bat. When you buy a property for the sake of flipping – that is not investing, it is called gambling.
Simply because you sell “in the hopes” somebody will buy that property. In investing, we rely on facts and numbers – not mere speculations without concrete reasons.
I understand that we always hear stories of people having able to sell their houses right after their purchase but sticking to the fundamentals would be a safer way to invest and make money. The risks associated with flipping a fresh property is too high to take. It would take years to recover from buying a wrong property.
Worst off – you may have a financial monster in your hands and would need to auction the property, which would not represent a good outlook on your financial backgrounds the next time you apply for loans.
This same advise is applicable to properties that YOU THINK can get high rentals and make good money!
Always go back to fundamentals and research well your markets and competitors. One key strategy to know if that area has good rental occupation rate is to make time and visit that area at night. Observe how many lights are on in every units. If there are many units with lights on, that shows high occupancy – a plus point to buy a unit in that area! If it’s vice versa, you should consider other places.
3. YOU THINK GOING TO ONE CLASS IS ENOUGH
It is plausible that you make effort to attend property classes – that’s great. Then you will feel pumped up and highly motivated – and you feel highly driven to buy a property. You will think that you can make money with the current knowledge you have.
But little did you know that there are more aspects you need to know to buy the first house – which is the riskiest investment. That’s right, your first house is the most vital investment to make.
4. YOU DIDN’T MAKE SURE THAT ALL THE FACTS AND NUMBERS ARE PRECISED!
It will determine whether you can be on the fast lane or slow lane in property investments. Because you might get stuck with that property for at least 6 years or more as a result of bad judgement. But that’s alright, you will learn by experience.
Always ensure your knowledge checks are complete. Things to know or cover are mainly as below:
5. YOU DID NOT PERFORMED THE REAL ESTATE INVESTMENT CALCULATION
To be an investor, you must rely on facts and numbers – not hopes and rumours.
This applies the same with property investments. You have to know the basic calculations to know if your property can make money.
How do you make the calculation?
Ensure that the property you want to invest is below market value approximately 10% – 20%
You can do this by checking the price offered by sellers against the average price people offer around the area.
Better yet, in Malaysia, we have a website that discloses the transparency of actual price transacted on the sales and purchase agreement (S&P). It was a partnership between a company and the local government to improve the property market business.
So if the seller’s offered price < average market price?
That clearly shows the property price is below market value.
However, to easily know that you can get a property below market value, have a go at auctioned properties. These are properties that have problems mainly due to previous owners having trouble repaying their monthly installments.
6. APPLYING MULTIPLE LOANS FOR MANY PROPERTIES AT ONE TIME (MULTIPLE SUBMISSION)
If I would tell you one thing that is truly risky – the black magic in property investing; that is none other than multiple submissions.
Normally when you associate black magic with the practitioner, it would definitely harm the practitioner in return. The multiple submission technique applies the same consequences – it would do more harm than good if not applied carefully.
You might wonder why this is black magic?
Imagine you applied a loan for two properties because you think that you can flip (sell) the property right after purchase or rent it high – considering the fact that your income can’t sustain the installments for both units.
Remarkably, your loan gets approved probably because you combined loan applications with your wife/trusted partner. That’s great!
Things get scary when both the units can’t be sold immediately, or nobody would want to rent the units/ rented it at lower price!
What will you do when this happen?
Worse comes to worse you might have to auction the properties or you’ll go bankrupt. Would really hope this is the last resort.
There are times where you think that specific property promised a good deal, even if you know you can’t maintain it – it is recommendable to bolster your income or buy a property you can afford.
7. NOT BUYING PROPERTIES NEAR YOUR “COMMON AREAS”
Common areas are areas where you normally go everyday. It can be the area where you work, your neighbourhood areas, or the place you passed by everyday. The idea is to buy a property that you find easy to visit in case you need to be physically there!
What happens if you don’t buy a property near your common area?
One thing for sure…. you will find it hard to visit your property if you need to be there physically. Things like signing contracts with tenants or handing over of keys (if you are into Airbnb business) would be a challenge if you are not physically there.
However, the aforementioned challenges can be overcome by building contacts with the local janitors or neighbours who can help you out – of course, with an additional pay. The key to implement this is to find people who you can trust to run your chores when you can’t be there physically.
With all that said, hope you will make wiser investment decisions! It makes a lot of financial differences between making the right decisions and a wrong one.