How to Avoid A Bad Investment Property
Being in the real estate industry requires property owners to make lots of relatively big and important decisions, which can be daunting. Learning how to avoid a bad investment property is important.
Many investors may start out with the dream of having passive income, only a few will ever get past their first investment and even fewer will reach the top of the property ladder.
It is normal to seek advice from your agent, friends, family or online.
However, you need to be able to look for the red flags also.
Thus, it is important to know how to recognise them and prevent long-lasting consequences and feeling completely overwhelmed.
So, how can property owners choose trustworthy advice?
Whether you are a budding or experienced property investor, here is a list of bad advice for you to avoid:
Bad advice #1: “You need a massive amount of capital”
Over time, the property market has been known as a low volatile asset because it doesn’t trade frequently.
This makes it such an enticing opportunity for us to add assets as an investment.
Having a large sum of money makes it easier for you to start, but it doesn’t guarantee the success of it.
Do not be discouraged if you don’t have plenty of cash or a wealthy family. There are plenty of ways to make more money.
If you’re thinking of buying, this initial money would be used to cover the deposit and other purchase costs such as inspections and stamp duty.
There’s really no one-size-fits-all amount of money needed to invest, it all depends on the property and deposit percentage.
What you could do instead:
Firstly, the most obvious step is to start saving until you have enough capital.
Remember that money won’t save itself if you keep telling yourself to start saving it tomorrow.
After determining the amount of money, you want to save, categorize your expenses and set their respective upper limits.
This way, you should gain more control over saving the required amount every month.
There are a few other ways to help you save, such as moving to a cheaper area to save on rent, having a side hustle or automatically saving 20-30% of your salary to a savings account as soon as you receive it.
It is also worth mentioning not to splurge on smashed avocado brunches.
While saving is pretty straightforward, it won’t give you much return.
Other things you could consider
Thus, you should consider leveraging, it is one of the advantages that you gain from investing in real estate, compared to the stock market.
Leveraging is using various financial ways or borrowed capital to increase the potential return of investment.
As such, purchasing the stock market requires you to pay the full value of the current stock, but it is different for property.
No doubt that there are definitely risks in using leverage to buy investment properties.
Leveraging equity growth can help you reach your property goal faster, as long as you have a clear and correct strategy.
A good mortgage broker can help you source the correct loan.
Share the pain
Lastly, remember the saying ‘the more the merrier’?
One alternative is to invest with family or friends.
Rather than borrowing money, it could be better to invest together if they have the same interest as you.
It totally depends on your relationship with them because it may or may not be worth the emotional price.
It is much harder to say ‘no’ to someone you know, and you would often want to do them a favour.
Being selfless is not the right attitude while investing and could be a huge burden for you.
If friends and family are out of the picture, do consider property syndication.
Remember that you are only one step away from starting your own property business, start doing something about that today!
Bad advice #2: “You’re too young to start”
Are you really too young to invest? Think again, you are never too young to get rich, right? The path to wealth could be closer because the younger you are, the more opportunity you will have. Also, the greater learning curve you can experience.
This is why putting off investing until you are older and have higher disposable income is not a good idea.
What you should do instead:
Apart from a few steps that you can take as discussed above, remember that the best time to buy is when you can afford to do so.
Start by educating yourself by subscribing to newsletters, blogs and online forums from property institutions.
Additionally, research on property prices, taxes and other costs involved.
It is recommended to seek professional advice from qualified professionals such as mortgage brokers, financial planners and property managers.
It may be overwhelming for you as you’re probably in your carefree era; no mortgage, spouse or children to care for.
But, if you do things right, you’re setting yourself up for life.
Be your own boss
This advice doesn’t only apply to property investing. Nowadays, you can smell the entrepreneurial spirit in the air.
Why not have your own business? Again, you are never too young to be your own boss. Once you set your startup off, consider finding investors to further fund your business.
Also, we’ve written a guide on why investing in property at a young age is actually a good idea and how to do so.
Bad advice #3: “Wait for the perfect market timing to buy”
There’s never a perfect time to invest. It is common for budding property investors to wait for the property market to cool down and try to pick the right moment just before the market is going to strengthen.
While you are waiting for the market to cool down or for it to be ‘optimal’, what often happens is that you will most likely be overly cautious and end up not buying at all.
We can all agree that we can’t accurately predict the future, especially in the financial market.
The past really is not a good indicator of the future because there are way too many variables to be predicted.
There might be experts that have economic models and could anticipate the future.
Again, even the safest predictions won’t be accurate over the long-term.
What you should do instead:
Firstly, don’t try to time the markets. While it is true that timing is crucial for property investments, the basic concept of investing in property is: buy low and sell high.
Thus, instead of focusing on the ‘when’, you should be concerned about ‘how’.
Those investors who fixate on ‘when’, only produce a handful of large winners.
If you are not lucky, you will fall into the large group of the underdogs.
Knowing how to invest enables you to spot the potential for profitable returns because the property market rarely has perfect conditions.
Thus, if you can afford to invest in property now, don’t put off that decision.
Bad advice #4: “Investing in real estate will guarantee a quick return of investment”
Who wouldn’t love to be a millionaire? We often come across the ‘secrets’ or ‘hot tips’ in making you rich quickly in the property industry.
For those looking for a quick fix for financial problems, property investing is not for you.
While property is one of the most popular types of investment, there are many factors such as locations, hidden cost and the rising interest rate that could be a nightmare for you.
Not to mention, finding the perfect timing to sell would make or break your whole objective.
What you should do instead:
Research, find out about major structural issues, calculate expenses and profit, as well as investment loan options.
Most importantly, know what are the most common hidden costs of buying a property. For example, do you know about asking for property inspection reports? This is important to avoid problems or extra costs in the future and acts as leverage to negotiate a lower price should your property require some repairs.
Just to mention a few more; stamp duty and government fees, legal fees and insurance. Moreover, the process of buying the property usually takes around six months on average, from looking for the property to closing contract.
It is also known that it takes on average a few years before investors start to produce significant growth. This varies by the area, market and other external factors.
This is why investing in property is unlikely to be the ‘instant gratification’ option.
- You can start investing in property when you’re young or have little capital
- It’s never the perfect time to invest because the property market rarely has perfect conditions
- It’s better to know ‘how’ rather than ‘when’ to invest
- Patience. Real estate investment takes time to sell, it’s not a lottery
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