Real estate investment is the easiest way to earn passive money if done right. However, many investors, especially those who are new to real estate business, do not achieve their desired results. This is because of the common real estate mistakes that often investors repeat or don’t pay much attention to (let alone avoid these real estate investment mistakes).
Do you want to avoid these real estate investment mistakes? Read our detailed article to identify these mistakes so that you can avoid them.
Here are the 5 common mistakes that every investor should avoid while making a real estate investment.
Table of Contents
Before you make a decision to invest in a property, you must conduct extensive research. This research could include many aspects.
- Legal Status of the property:
First off, you must check if the property you intend to invest in is legal. If it’s a house, apartment, or a shop you want to buy, demand the legal documents to be certain if the property is legally owned by the seller.
If you are buying a plot in a society, you must be aware of the NOC status of that society. Some housing schemes betray the investors with alluring advertisements while the housing scheme has not yet been approved by the regional development authorities.
Related: How to check if a society is legal!
- Expected Returns:
You should monitor market dynamics for a project or a property (located in a specific neighborhood). If the market demand is rising for a project/neighborhood, there is room for earning returns on investment. On the other hand, if demand is decreasing for a project or it has become static, there are meager chances for returns of investing in such a place; it is likely that your money would be stuck in such a project.
- Compare Prices:
Before you buy or invest in a property or an upcoming project, you should always check the prices of similar projects or properties in the area lest you should pay more than it’s worth.
Not seeking Professional Advice
Most people when they intend to invest, they ask their relatives and friends for advice. Since a non-professional person doesn’t have hands-on experience and knowledge, this is not always helpful.
Surrounding yourself with the suggestions from laymen can make you even more confused and in a wavering state of mind.
If you are going to invest your hard-earned money, you must make the right decision. You obviously want to invest in a project where there’s a high probability of earning a profit. To make the right decision, it is recommended to hire an authentic real estate agent. An agent has a lot of actual information about the market coupled with his experience, he can guide you to the right direction and help you invest in a profitable project/property.
Investing huge amount in one project
Should you invest your whole savings into one real estate project? Investing all your money in one project can be highly risky. Because if the project fails, all your money would sink with it.
Instead, you should invest your money into more than one projects that has the potential to bring you returns. This way, if one of the investments fails or gets stuck, you’d have a backup as the profit or earning from the other investments.
The risk is lower when you make multiple investments; it would be a rare scenario that all investments/projects fail.
Unable to understand Long term vs Short term Plans
An investor must know what he wants from his investment; either he wants a profit within a short time or right away after investing (short term investment) or he wants to wait until he could reap humongous returns(long term investment).
If you know exactly what is your goal with your investment, you’d make the right choice. You should invest in a project with high potential for quick returns for a short term investment plan. The opportunity of a short term gain is a bit rare and requires continuous vigilance and evaluation of the market to identify the right time to buy and sell. Follow your real estate agent’s advice for best results as he would have more knowledge of the market.
Some projects have potential for returns but price appreciation is slower, such projects make a good option for a long term investment plan. It is important to be patient in such investments once you have carefully chosen a reliable project.
Buying rental properties is good for those investors who are looking for continuous benefits from their property. You can rent out your newly purchased shop/apartment/house and keep earning monthly income from it.
Lacking a plan
When you decide to invest your money in real estate, you first must develop a plan. If you don’t think about the possible outcomes of the investment and how to deal with these outcomes, it might multiply the risk.
Since there’s no guarantee in the real estate business of whether you would earn the expected returns or not. Things can take an unexpected turn any time in real estate business. Moreover, the higher the investment, the higher the risk.
This is why you must have a backup if you are unable to earn the expected returns or your investment gets stuck in a property or project. You should have a support system which keeps you steady financially, such as investing your money in two projects instead of investing all money in one project (already discussed in point 3).
If you are to invest in real estate property, you must learn about how it works, what risks are involved, and which are the reliable projects in the market. You are more likely to avoid mistakes in real estate investment if you have researched well and gathered answers to all these questions and can make a known and wise decision which will benefit you in the longer run.