Putting a good chunk of your money into a field that’s quite complex can be a bit nerve-wracking. However, there are plenty of good reasons why people with disposable income purchase real estate properties to add to their investment portfolio.
Indeed, investing in real estate can generate cash flow. Investors can also make use of tax breaks and deductions and see the value of their real estate property appreciate over time. Even as a newbie investor, playing your cards right and putting money into real estate can definitely help you build your equity and net worth.
To maximise your profit from this type of venture, you need to be aware of a few mistakes that most newbie real estate investors are prone to making. If you’re able to find a real estate agent that you’re comfortable working with, they’ll likely give you a fair warning about the following common errors made by inexperienced real estate buyers:
Using Your Feelings as the Basis for Your Decisions
Reality shows that focus on real estate acquisition often showcase how buyers choose their first home by going with their gut feel. In real life, though, this isn’t always the smartest option. Buying real estate is a significant decision that should be based on facts and critical analysis. Making the right choice means doing the math and analysing the value and potential of the property as objectively as you can.
If you want to purchase a property, carefully consider exactly what you want to do with it, its location, your target demographic as well as what makes the property attractive to them, and how sustainable this new venture will be in the long term. Your first real estate acquisition has to make sense financially if you want to make the most out of this investment. Whether or not it feels ‘right’ for you is just icing on the cake.
Taking Up the Task of Managing Your Tenants by Yourself
Playing the role of a property owner seems like an easy task in theory, but the whole process can be filled with complications in real life. Dealing with tenants means dealing with people and poking your nose into their home or place of work. This means being confronted with very human needs and demands.
It takes someone with experience and training to fulfil these obligations in a satisfying manner. Sure, allowing a property manager to take over this task can cost you extra, but it will also save you from having to field complaints from disgruntled tenants on a daily or weekly basis. Besides, you’re better off using your free time to find other properties to invest in.
Waiting for the Perfect Property to Fall onto Your Lap
While there are investors that come across promising real estate properties out of sheer luck, a majority of successful real estate investors actively look for properties that suit their goals and plans. If you’re keen on making your first venture in real estate acquisition, now is a good time to act on it.
At the very least, you can look at the available properties within your budget and determine which one gives you the best chance to improve the value of your portfolio. If you’ve found “the one” but you don’t have the budget for it just yet, you can take a solid step in the right direction by seriously thinking about your goals and determining the steps you need to achieve them.
Chasing After the Option with the Lowest Interest Rate
The interest rate is an important consideration when purchasing a property, but it’s not the only factor you should think about. Choosing a loan program that offers the lowest interest rate doesn’t ensure that you’ll acquire the property you’re eyeing for the lowest possible price. Some plans have hefty fees that will come into play in case you find better deals elsewhere or if you break the terms of the loan.
Expecting Too Much from Your Investment
While buying real estate and putting up the property for lease or sale can be a lucrative business, you likely won’t see your money double its value in just a year or two. Believing so is simply setting yourself up for heartbreak, and making decisions based on this mistaken assumption can end in a financial disaster. Property values indeed continue to appreciate, that much is true. However, in the last 25 years or so, the property value in Australia has generally increased by 6.8 per cent annually.
Knowing all these, prepare to hold on to your real estate property for a while if you want to maximise your profit from it. Seasoned real estate investors, for example, tend to hold onto their investments for a few decades at a time to sell their properties at the best possible price. Also carefully consider where you want to put your money so you can make the most out of it.
Investing in your first real estate property is both an exhilarating and anxious moment. On one hand, it means that you can dip your toes into a highly lucrative business. On the other, investing is a huge risk. But as long as you keep these pointers in mind, you shouldn’t have that much of a problem making money in the real estate market.
Looking for your first property investment? Get in touch with Gerard Partners to get a list of properties for sale.