New to property investment? Avoid these common mistakes!
If you're new to property investment, it's important to be aware of the common mistakes that beginners make. From not doing your research to not having enough capital, there are a range of pitfalls to avoid when investing in property. In this blog post, we'll look at some of the most common mistakes when it comes to property investment, so you can make informed decisions and get the best out of your investment, and grow your portfolio successfully.
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When it comes to investing in property, one of the most common mistakes is not having a plan. Before investing in any property, it is important to carefully plan out each step of the process. You should have an idea of the type of property you want to invest in, what budget you have to work with, and what your expectations are for the investment. Additionally, it is important to make sure you understand all the costs associated with buying a property, such as closing costs, taxes, insurance, and more. Not taking the time to create a well-thought-out plan can result in costly buy-to-let mistakes that can severely affect your return on investment. Investing in real estate without a plan is a surefire way to fail, so be sure to take the time to come up with a strategy before jumping into the market.
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The second mistake, which ties in with not having a plan (see above), some investors make is not doing enough of their own research into the current market, this includes current trends, locations, property prices and rental yields. Without doing your due diligence you run the risk of investing in a buy-to-let property that won’t give you a good return on your investment. This could end up being one of the most costly real estate investment mistakes, and one you'll want to avoid. It’s also important to ensure that you’re aware of any potential legal issues or hidden costs that may be associated with a particular area or property, as well as any local building regulations or bylaws that you may need to take into account. A good example of this is ensuring you read the lease when it comes to leasehold properties, especially if you are thinking of doing short-term lets / serviced accommodation, as many older leases do not allow you to sublet or let as anything other than a long term assured shorthold tenancy. When researching an area for investing in real estate you must familiarise yourself with local amenities and attractions that might influence demand for rental properties. Understanding what local renters are looking for will go a long way in helping you source suitable buy-to-let investments. Ask yourself the question, who am I going to rent to? Is there a market for this type of accommodation here?
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Have you ever watched an episode of 'Dragons Den' and laughed or cringed when the people pitching their business have no idea about turnover, profit or loss? One of the biggest buy to let mistakes made by new property investors is not knowing their numbers. Investing in property can be a great way to make money, but you must understand the potential income and expenditure associated with each investment. Knowing how much rental income you can expect, how much your monthly mortgage payments will be and the ongoing costs such as insurance, repairs and maintenance will help you make an informed decision about whether or not the investment is right for you. Without understanding these numbers you could end up overpaying for a property, not having enough cash flow to cover the mortgage payments or find yourself unable to afford the repairs and maintenance needed. Do your due diligence and make sure you understand all of the numbers associated with each property before making a final decision.
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Another big mistake to avoid when investing in property is overpaying. It's important to remember that while you may be emotionally invested in a particular property, you need to stay rational and ensure you’re making a good financial decision. Research the market, have a thorough understanding of the area and property values, and understand your financing options. Doing your due diligence will help ensure you don’t overpay for your property and pay more than it is worth. Additionally, be sure to factor in any necessary renovations or repairs and don’t forget to consider potential hidden costs such as insurance and taxes.
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Having a buffer is essential. A buffer is an amount of money that you set aside to cover any unexpected costs or repairs that may arise during your investment journey. This could include things like maintenance costs, loan repayment fees, and legal fees.
Having a buffer will ensure that you don’t overspend on your investment and will give you peace of mind knowing that you have something to fall back on if anything goes wrong. The amount of money that you should set aside for your buffer will vary depending on the size of your investment, but a good rule of thumb is to put away at least five percent of your total budget. This may seem like a lot, but when it comes to property investment, it’s always better to be prepared than sorry.
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A common mistake made by novice property investors is not diversifying their portfolios. When you only invest in one type of property, you’re putting all your eggs in one basket. This means that if something goes wrong with that property, demographic or market, you could suffer significant losses.
Instead, you should aim to diversify your portfolio by investing in different types of property, in different areas, different sectors of the market, and possibly even in different countries. Doing so will help to reduce your risk, as well as give you a more balanced and reliable income stream.
It’s also important to diversify your investments within the same property type. Don’t just stick to single-family dwellings—mix it up with different numbers of bedrooms. Each type of investment will offer its own unique benefits and potential risks, so don’t forget to do your due diligence before making any decisions.
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When it comes to property investment, having an exit strategy is just as important as any other step in the process. Without a clear plan for how you'll eventually exit the investment, you could be setting yourself up for a difficult and costly process.
An exit strategy is the way in which you will dispose of your property or end your involvement in the investment when the time comes. Depending on the type of property you invest in, there are many different exit strategies available.
Some common ones include:
- Selling the property outright to another investor or buyer
- Refinancing the property to access cash and then selling
- Holding onto the property until it appreciates in value and then selling
- Renting out the property
- Transferring ownership of the property to another person or company
It’s important to consider all possible scenarios when planning your exit strategy. Think about what could potentially happen during your time as an investor and plan for any eventuality. Be sure to take into account current market conditions, taxation, fees and any other costs that may arise from selling the property. Knowing the ins and outs of your local real estate market can also be beneficial when creating your exit strategy.
Having an exit strategy can help you maximize your returns on investment and minimize any risks. Don’t let yourself get stuck with a property you can’t get rid of – take the time to create an exit strategy before investing.
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Finally, if you’re new to property investing, consider hiring a professional advisor or mentor to help guide your decisions. A professional can help you choose the right properties to invest in and ensure that you don’t make any costly mistakes. They’ll also be able to give you valuable advice on how to diversify your portfolio. Here at Residential Estates, we offer a wealth of free no obligation advice from industry professionals, who have a combined experience totalling over 100 years. To speak to a senior investment consultant call our advisory team on 01244 343 355 or email sales@residential-estates.co.uk
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