Ravi Chandran
Rookie property investment mistakes may seem like common sense, but they are so common that it is best to take note of them.
By: Hitesh Khan/
First time investors make a lot of mistakes that can be made in Real Estate. In fact, many savvy investors still make mistakes or have overcome huge mistakes in their investing careers.
The keys to avoid rookie property investment mistakes are to recognize, avoid, learn and move forward from these potential pitfalls.
Table of Contents
Speculate – Most new investors follow the herd, listen to the media and buy with the hope the property will appreciate. This is as much of a gamble as hand picking stocks or going to the Casino. Where possible, buy below market where you don’t have to pay too much. Overpaying for speculation is the major rookie property investment mistake you will want to avoid making, as it has the potential to affect positive cash flow.
Buy at Market Value – Beginners almost always buy property straight off the property listing and for market value. You can find deals in any market and there are always distressed properties which can be bought at fire sale. A savvy investor will know how to cherry pick from distressed properties at a huge discount off market value.
Fall in love with a deal and get your emotions involved – Many beginners are guilty of this rookie property investment mistake.
Their first few deals they spend minimal time finding a deal. As soon as a prospect is located, they fall in love and do anything to get that property. Emotions drive the decision, instead of making an informed business decision. Key is to get as many prospects that fit the criteria into the pipeline, filter out the duds and cherry pick only the best deals.
Put too much down or too much of your own money – Real estate is an OPM or Other People’s Money industry. You should minimize how much of your own money is in a deal. And always make sure you have plenty of reserves to handle any not so pleasant surprises.
Only have one exit strategy – To minimize risk, it is imperative to have multiple exit strategies. If you cannot flip a property you can quickly end up upside down, behind in payments and lose the property and your credit. Instead, buy below market properties so that cash can flow. That way you can sell retail, wholesale, lease option, seller finance, refinance, even rent and hold.
Buy in ‘Warzones’ – One rookie property investment mistake many make is to buy property without a deep discount. In today’s market you can find huge discounts in many areas, but only if you do your due diligence. Buying a property for $1.5 million when you speculate that the property may be worth $3 million sounds like a slam dunk, but not if the property needs multiple repairs, is surrounded by bars, nightclubs and brothels (like in Lorongs 21 and 23 in Geylang). Because with such properties, there is next to zero interest from renters or buyers due to the location in or near a ‘warzone’. Make sure there is strong demand from renters and/or ownership in the area.
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Do not consult an expert or build a team – Many people are ‘do-it-yourselfers’ and cannot fathom the idea of another person giving them advice or handling tasks. Real estate can be very passive if you build a solid team and many experts are more than willing to give you advice that could significantly impact your success and experience as a beginner.
One of the most important decisions you will need to make is who will hold your mortgage. It is very easy to walk into a bank and take the first home investment loan that they give you. But a savvy investor will always seek the advise of a trusted and reliable mortgage broker to compare and get the best deal for their property investment. In fact, a savvy investor will include such mortgage brokers to be a part of their real estate investment team.
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Many gurus make real estate investing sound so easy, but many beginners make one, if nor all of the above mistakes and have a miserable first time investing experience. Whether you are a beginner or an expert, it is always a great idea to get as many expert opinions as you can. They will make you aware of many potential mistakes and red flags.
Rookie property investors must play the numbers game and cherry pick from as many prospects that meet your criteria as possible. Also always do extremely thorough due diligence.
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