8 Real Estate Beginner Mistakes That Veteran Investors Will Cringe At Hearing

By on August 7, 2013

In school, we are trained to learn from mistakes.

In fact, a lot of people encourage making mistakes so that beginners can learn from them. Well those are for academic purposes only. Because in the real world where we make investments with real money, mistakes should be avoided at all costs.

When you make one, it is not as simple as 5 marks off your exam score. You are going to get hit with real dollars off your bank account. And when grave mistakes are made, you know as well as anybody what can happen.

As investing cannot be broken down to a science, a number of mistakes are repeated again and again by newbies who do not bother to do some learning. Or they actually read up a lot of research but refuse to acknowledge them as they are in a “special case”.

Let me break the news to you.

Even experienced investors make mistakes. But they are less likely to be one of these typical beginner mistakes listed below.

1) Speculate

The biggest and baddest mistake beginners are notorious at making is mimicking what everyone else are doing.

They read up the newspapers and decide that a listing or new condo launch looks like gold.

In case you do not know, those are advertisements. And advertisements are only going to paint a beautiful picture of how great an investment is. You cannot expect a mental marketer to buy up a full page advert and talk trash about the project he is marketing.

Buying with the assumption or faith that values are going to rise is as good as gambling. Some people can actually favour a development just for it’s fancy name.

Would you buy a new stock with a fancy name just because the company put up a glowing full page advertisement in the papers? If not, why should you be doing that with properties?

2) Advice from the wrong people

If you keep a lookout on properties, you will notice announcements or advertisements saying something like “Attend our property workshop valued at $997 for FREE” everywhere.

Those who are not interested in properties will not even notice these adverts.

There is no free lunch in this world and you can bet that the organizers of these seminars are going to sell you something. At the end of these workshops that offer little substance, you are going to be sold an expensive “3 Day Event” or a property development overseas at a “huge discount”.

And you will see some “suspect” participants run straight up immediately to sign up for whatever is being sold. These salespeople are very convincing at sales events. It is dangerous to take advice from “gurus” who are marketing the exact properties they are recommending that you buy.

There is also a growing number of “networking groups” that are specifically created on pretense by “gurus” with the goal to sell you overseas properties.

Investors who have been around the block can smell them a mile away and don’t even bother about them. Newbies are most vulnerable to these activities.

And what about “gurus” who are realtors?

Well if they are that good at investing, they would have quit being a realtor long ago. There is an obvious conflict of interest. You have to make a judgement call on this one.

how to be a guru

Call me Mr Guru

3) Fall in love with the property

We are human beings. And that means that we are at the mercy of our emotions from time to time.

Beginners have a tendency to buy the best properties at a development or neighbourhood with the best views and a long list of facilities.

Always bear in mind that your objective is to rent out at maximum return on investment (ROI). The best property investments tend to be the worst houses in a good neighbourhood.

Emotions and your ego could entice you to fork out the cash to purchase a beautiful apartment that you can boast about with your peers.

Guess what? You are not going to be living in it. Why is there a need to get one you love?

If you are betting on appreciation, go back and take a look at point 1.

Just buy hold sell?

Just buy hold sell?

4) Not using enough leverage

When you are using more of your own cash then you need to, you are either contented with a small portfolio or you have absolutely no idea what you are doing.

Investments are all about using other people’s money (OPM). To build a sizeable portfolio of real estate, you are going to exploit the use of leverage via mortgages or creative financing.

There are no 2 ways about it. Using little of your own cash means that you will maximize ROI and have a buffer cash reserve stockpiled ever ready to be called upon.

5) Buying at market value

It still continues to amaze me how many people are swallowing up new launches at any price a developer determines.

How do you value a house so highly that has no physical presence? This topic alone can take up a whole chapter of a tertiary textbook.

Good thing I will not be going into the details of it.

But when you are buying completed resale properties, you will be a fool to accept that the market value of a home is what you should pay.

You are an investor and you have limitless options. Start with low offers of at least 20% below valuation. This is your call to negotiate and sieve out those who will not compromise.

If the seller does not even have an interest to negotiate, move on to the next listing with nonchalance. They are not who you are looking to deal with. Just another day in the office.

6) Not networking with the people in the supply chain

A property transaction involves a number of parties. The services of these parties are essential for your research and closing.

Researchers, bankers, realtors, appraisers, lawyers, brokers, etc, are just some of those that you will run into. They want your business and you need their services.

When you first started out in the real estate journey, you might be reserved at networking with these professionals.

Note that these specialists are embedded deeply into property transactions and have in-depth expertise and information that you can learn from.

They are not competing with you as an investor. So start building relationships with them to expand your reach. Be wary of those that resemble point 2.

7) Blurry exit strategy

The most common plan for beginners is hold for 5 years and hope that the apartment can be sold off at a much higher value.

Appreciation is not a given, my friend.

This strategy is not flawed. But you need to consider alternatives should events happen that hamper your ability to exit that way at a profit. As a proper investor that means business, you have to draw up many alternative exit plans so that you are always above water.

Yes that looks like a property

Yes that looks like a property

8) Never even seen the property

Yes you might laugh at how anyone can invest in a property they have never even seen in real life. You could even be one of them if you have put your money in things like REITs.

The comforting factor of REITs is that they are run by reputable mega corporations that are highly regulated by authorities. This helps us sleep better at night.

However, there is an increasing number of real estate promoters flying around the globe with the sole intention of taking our monies to a foreign land for real estate investments.

They come dressed in designer suits fully equipped with flyers, posh Powerpoint presentations, sexy staff, seductive accents, and basically the whole package.

These investments might be as genuine and legit as it gets. But if you can convince yourself to draw out your cheque book for tens or hundreds of thousands of dollars just by looking at some images and numbers, maybe you have bigger problems than finding a place to park your excess cash.

The best way to prevent yourself from falling into these common beginner traps is to educate yourself. Acknowledge and accept the fact that you are a beginner and surround yourself with real investors and professionals in point 6.

Veteran investors who have “made it” love to share their knowledge and experience. Make it a point to pick on their brains. Doing so, you will learn to recognize obvious pitfalls to avoid them and also get up after making a mistake to move on.



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