Mistakes Property Investors Make

5 Mistakes Rookie Property Investors Make

Property investment can be fraught with pitfalls for those just starting out with property investment.

In this article we take a look at the most common pitfalls so you can avoid them.

It is important to note that there isn’t always a guaranteed formula for success in any kind of financial investment. However, there is certainly an almost foolproof plan to avoid making significant and unnecessary mistakes when investing in property.

To help prospective investors avoid these potholes, we’ve compiled a list of the 5 most ill-informed, amatuer and ultimately easy mistakes that property investors make.

It is true that many opportunities for reward don’t come without their risks.. However, our list below aims to help minimise the risks associated with actions and choices made in property investment.

We identify the nature of the mistakes and explaining why they are detrimental to both your finances and investment portfolio.

Whether you’re already an investor, considering a career in property investment or just interested in finding out more, check out our list of the 5 rookie mistakes below.

1. Not Doing Your Homework

Research is absolutely vital for any kind of professional and/or financial investment.

Many rookie property investors will enter the market without sufficient thinking, and get caught up in all the excitement and make bad decisions.

Frequently they end up buying a property with no background research having been undertaken.

Failing to do your background research is a very common mistake. Points to research include:

average rental yields for an area
the rate that prices are going up in the area
average time taken to let property in the area
crime rates and other adverse factors within the area

However, background research starts before considering your first investment property.

Read books, relevant blogs and any material that will expand your knowledge. Do you know what a section 21 notice is? How and when to serve them to a tenant? This is the type of thing a would-be property investor needs to learn about first.

Once you have your background knowledge in place it is time to the move on to researching your opportunities.

Research the area and the type of property you’re looking at. What the market rates are and the average profit yield (short and long-term). This will enable you to make forecasts and predictions on your investment.

2. Home Bittersweet Home – Looking for a Dream House

Picking a property based on your own taste is a common beginner’s mistake.

This is a frequently made mistake in the property investment industry, but one we can all relate to.

When we view a house, car or even visit a restaurant, most of us automatically form a personal opinion on it in relation to our preferences, conveniences and tastes.

However, when buying property to then let out you can end up missing out on a great investment purely because you couldn’t envisage yourself or your family living there.

With investment property it is not your own tastes you are buying for.

For example, you might only want a property with space to park your car(s). However if your target market is students most of them will not drive. A lack of parking may be no issue at all to tenants who predominantly walk or use a bicycle as their main mode of travel.

When it comes to interior decoration, you may be put off a property because it isn’t your favourite shade of purple. In actual fact, neutrality and an overall cream/white presentation is the best thing to go for when trying to appeal to the mainstream tenant market.

After all, a blank canvas can allow an imagination to blossom and decorate the home in their own style preemptively, as opposed to being dissuaded by a finished project built in another’s own image.

3. Love Thy Neighbour (with a pinch of salt)

Picking a good tenant is very important.

Get references and select the tenant based on business decisions. A good example is whether they have good credit rather than whether they seem to be a nice person.

I know this sounds painfully obvious, but it’s easy to rent your property to someone you’ve enjoyed talking to over someone you didn’t.

In general you should avoid building a close rapport as this can lead to a perceived lack of authority. Over friendliness can lead the tenant to pay rent late and never expect a rent increase due to the sacred code of “mate’s rates”. Things could also get awkward if you eventually decide that they need evicting! All unneeded, unnecessary stress.

Trust in others is also important because you shouldn’t find yourself…

4. Going Solo

Make sure you have a good team around you.

Even after years of research in the property investment market, it’s important to realise that you aren’t going to be able to do it all by yourself (despite how much you’ve learnt).

As with nearly every successful business model, you’re going to need a reliable and trustworthy team around you that can perform their roles to a very high standard.

If you can’t afford to hire a team at your beck and call, you should look to find information and establish a professional network of contacts.

These can include a letting agent, a home inspector, a closing attorney and a financial backer; both for your own deals and to assist with financing for prospective buyers.

Arguably, the most important occupation to acquire is a property manager. They generally won’t affect your budget too much and they provide a deduction on tax payments.

Property managers can be utilised through a delegation of many tasks, including sorting out maintenance, paying the bills on your behalf and preparing your monthly and financial end of year accounts.

Acquiring a property manager can save you an abundance of priceless time which you can instead use to research more properties and find your next big deal!

Our final pitfall that many rookie property investors don’t even realise they’re falling into is:

5. Not Keeping Good Options Open – Overlooking Opportunities Outside The Biggest Cities

It’s safe to say that you will need to look outside of your comfort zone, however most investors will ONLY look in big cities for properties due to the high demand from professionals and students looking to live there (not to mention that international students put over £10 billion into the UK economy each year).

Sure, there’s still good money to be made in the likes of London and Manchester.

However, focusing all your time and efforts on a small cluster of highly-competitive cities is a slightly rigid blueprint in the present day when other cities are growing all the time and aren’t yet saturated with swarms of new property investors.

For example, Leeds is the latest city to become regarded as an affluent metropolis of scholars, students and businessmen.

Use the knowledge you’ve acquired of your local area to see if there’s any potential property goldmines (near higher education facilities, low-crime rate, beautiful scenery, good value properties) that haven’t yet been tapped into by the swarms of seasoned property investors.

Of course it’s not advisable to only look locally, but you shouldn’t limit yourself to the main illustrious cities that you can count on one hand; do your research and get a good team around you to help you find the property, in the right location, and at the right time.