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Top Ten Mistakes made by Real Estate Investors
Having dealt with literally thousands of property investors over the past 11 years, I’ve learnt a few things about where many people tend to go wrong.
1. Wrong Expectations
The first mistake most new property investors make is the tendency to come to the market with the wrong expectations. They often want too much return without understanding the risks. Generally this is because they don’t understand the return vs risk ratio that is inherent in all investing. (Perhaps they have read too many stories in property investing magazines that talk about “how I built a multi-million dollar investment property portfolio by the age of 11!”) Educating yourself properly is the key to ensuring you get your expectations right.
2. Poor Money Management Skills
The second most common mistake that many property investors make is they spend too much time finding out everything they can about property, but not enough time finding out everything they can about money and finance. The key to building and managing a successful investment property portfolio is to recognise that you need to be equally as good at managing money as you are at managing property. Property is simply the method through which you achieve your financial goals. You’re actually a financial strategist as soon as you start investing in property. Recognising this and becoming better at managing money is key to maximising the return on your property portfolio.
3. Lack of control
The third common mistake investors make is to invest in something they don’t have good control over. Control here means emotional, operational and financial control. Often, investors buy something too expensive where the price fluctuation can unsettle them, or they buy something in a location where they have little operational experience in, or buy something outside of their financial comfort zone. If you can’t control it, it is not your money. Hence repeating a simple and controllable property strategy is a more effective way to create wealth.
4. Wasting 80% of your time & effort
The fourth most common mistake is wasting too much of your time and efforts on activities that don’t actually contribute to you becoming a better property investor. In fact, I think that some 80% of our time is wasted on non-fruitful efforts. There’s more about this in an article I wrote at http://investorsdirect.com.au/blog/property-investing-are-you-wasting-80-of-your-effort/
5. No goal, no plan
The fifth biggest mistake is not having a clearly defined goal with a deadline and plan for how you will get there. That is, many investors simply start investing in property without first developing a desirable goal and putting a deadline there. For example, how about setting a goal like “I want a passive net income of $100,000 in say 7-10 years time!” Now you have a purpose for investing, not just something vague like “I’d like to make some money through property”. Once you have a goal, then you can develop a plan. A plan gives you a strategy and the discipline to follow so you can increase the chances of getting to your goal.
6. Trying to pick the market
The sixth mistake is trying to pick the bottom of the market. Every investor dreams of “buying low and selling high” to maximise the gain. This is true in everything. Certainly it can happen and you can get lucky but you can’t build a successful strategy on this because its not something you can replicate. And for everyone who thinks they can successfully pick the bottom or the top of the market, there are 10 people who find out, to their misfortune that it’s not so easy. It is far simpler to have a successful, well thought-out and well-executed strategy.
7. Too much listening to “the market”
The seventh mistake is listening too much to what’s happening “in the market” and not enough to your own inner voice and experience. The problem with the term “the market” in the first place is that it’s too broad, too general and too non-specific. No one buys the market. No one buys the median property. Investors buy specific properties in specific locations. And while the broad market may be suffering problems there are always specific locations or areas which are outperforming the market. If you know the factors that drive these areas, you can understand why it is worth investing in them, even when the broader market may be suffering.
8. Not being ready for investing
The eighth mistake is linked to the previous one and its about getting yourself ready for investing. That means, instead of waiting for the market to tell you that “now is the time to buy” you look at yourself and clarify some things first. Such as “do I have a goal for why I’d like to invest?” “Have I worked out a plan and a strategy for why I am investing?” “Do I have finance available right now and can I afford to invest?” If you get the right answers to these questions, only then should we start looking at the market and seeing what it tells us. And often we’ll find that if we get our mind right first, we’ll suddenly find value in the market that we couldn’t see before.
9. Inability to spot real value
The ninth mistake is not being able to spot whether a property represents real value in the market at any given time. For example you’re looking at buying in an area that has had steady growth over the past 20 years. Does that necessarily mean it will perform like that over the next 20 years? If you have no guidelines or principles on which to analyse the future potential of that area, you really don’t know what you are buying. At Investors Direct we have a simple but effective value formula we use to help work out whether a property or an area is worth buying into. https://investorsdirect.com.au/blog/find-value-real-estate-market/
10. Only buying a single property
The final mistake a property investor can make, is only buying one investment property. It’s hard to achieve your goals with a single property and having only one property can seriously taint your view of whether property investing is a good idea or not or even right for you. Think about this, if you buy shares in just one company on the stockmarket and that company performs poorly what do you think your idea of investing in shares will be like? Conversely if you happen to get lucky and pick a “winner” on the sharemarket, your opinion of investing in shares will be very positive. The same is true of property investing, if you only every buy one property. Building a portfolio however means you can be more flexible to changes in the market. With multiple properties in your portfolio you can dispose of underperforming properties when the market changes and reinvest in more properties that are returning positive results. With only one property, this is very hard to do.
Top Ten Mistakes made by Real Estate Investors
Having dealt with literally thousands of property investors over the past 11 years, I’ve learnt a few things about where many people tend to go wrong.
1. Wrong Expectations
The first mistake most new property investors make is the tendency to come to the market with the wrong expectations. They often want too much return without understanding the risks. Generally this is because they don’t understand the return vs risk ratio that is inherent in all investing. (Perhaps they have read too many stories in property investing magazines that talk about “how I built a multi-million dollar investment property portfolio by the age of 11!”) Educating yourself properly is the key to ensuring you get your expectations right.
2. Poor Money Management Skills
The second most common mistake that many property investors make is they spend too much time finding out everything they can about property, but not enough time finding out everything they can about money and finance. The key to building and managing a successful investment property portfolio is to recognise that you need to be equally as good at managing money as you are at managing property. Property is simply the method through which you achieve your financial goals. You’re actually a financial strategist as soon as you start investing in property. Recognising this and becoming better at managing money is key to maximising the return on your property portfolio.
3. Lack of control
The third common mistake investors make is to invest in something they don’t have good control over. Control here means emotional, operational and financial control. Often, investors buy something too expensive where the price fluctuation can unsettle them, or they buy something in a location where they have little operational experience in, or buy something outside of their financial comfort zone. If you can’t control it, it is not your money. Hence repeating a simple and controllable property strategy is a more effective way to create wealth.
4. Wasting 80% of your time & effort
The fourth most common mistake is wasting too much of your time and efforts on activities that don’t actually contribute to you becoming a better property investor. In fact, I think that some 80% of our time is wasted on non-fruitful efforts. There’s more about this in an article I wrote at http://investorsdirect.com.au/blog/property-investing-are-you-wasting-80-of-your-effort/
5. No goal, no plan
The fifth biggest mistake is not having a clearly defined goal with a deadline and plan for how you will get there. That is, many investors simply start investing in property without first developing a desirable goal and putting a deadline there. For example, how about setting a goal like “I want a passive net income of $100,000 in say 7-10 years time!” Now you have a purpose for investing, not just something vague like “I’d like to make some money through property”. Once you have a goal, then you can develop a plan. A plan gives you a strategy and the discipline to follow so you can increase the chances of getting to your goal.
6. Trying to pick the market
The sixth mistake is trying to pick the bottom of the market. Every investor dreams of “buying low and selling high” to maximise the gain. This is true in everything. Certainly it can happen and you can get lucky but you can’t build a successful strategy on this because its not something you can replicate. And for everyone who thinks they can successfully pick the bottom or the top of the market, there are 10 people who find out, to their misfortune that it’s not so easy. It is far simpler to have a successful, well thought-out and well-executed strategy.
7. Too much listening to “the market”
The seventh mistake is listening too much to what’s happening “in the market” and not enough to your own inner voice and experience. The problem with the term “the market” in the first place is that it’s too broad, too general and too non-specific. No one buys the market. No one buys the median property. Investors buy specific properties in specific locations. And while the broad market may be suffering problems there are always specific locations or areas which are outperforming the market. If you know the factors that drive these areas, you can understand why it is worth investing in them, even when the broader market may be suffering.
8. Not being ready for investing
The eighth mistake is linked to the previous one and its about getting yourself ready for investing. That means, instead of waiting for the market to tell you that “now is the time to buy” you look at yourself and clarify some things first. Such as “do I have a goal for why I’d like to invest?” “Have I worked out a plan and a strategy for why I am investing?” “Do I have finance available right now and can I afford to invest?” If you get the right answers to these questions, only then should we start looking at the market and seeing what it tells us. And often we’ll find that if we get our mind right first, we’ll suddenly find value in the market that we couldn’t see before.
9. Inability to spot real value
The ninth mistake is not being able to spot whether a property represents real value in the market at any given time. For example you’re looking at buying in an area that has had steady growth over the past 20 years. Does that necessarily mean it will perform like that over the next 20 years? If you have no guidelines or principles on which to analyse the future potential of that area, you really don’t know what you are buying. At Investors Direct we have a simple but effective value formula we use to help work out whether a property or an area is worth buying into. https://investorsdirect.com.au/blog/find-value-real-estate-market/
10. Only buying a single property
The final mistake a property investor can make, is only buying one investment property. It’s hard to achieve your goals with a single property and having only one property can seriously taint your view of whether property investing is a good idea or not or even right for you. Think about this, if you buy shares in just one company on the stockmarket and that company performs poorly what do you think your idea of investing in shares will be like? Conversely if you happen to get lucky and pick a “winner” on the sharemarket, your opinion of investing in shares will be very positive. The same is true of property investing, if you only every buy one property. Building a portfolio however means you can be more flexible to changes in the market. With multiple properties in your portfolio you can dispose of underperforming properties when the market changes and reinvest in more properties that are returning positive results. With only one property, this is very hard to do.
