Tips to make a profit as a property investor
In property investment, there isn’t a mistake that hasn’t already been made. Most are made by beginner investors, for example, people who want to buy their first investment properties or people who realize that even their homes are a potential future investment. Of course, that doesn’t mean that investors who already have some investment properties in their portfolio can’t make a wrong decision.
In this article, we will cover some of the most common property investment mistakes which, fortunately, can be avoided with preparation and thorough research.
1. Not knowing your investment goals
Be specific before you start investing. Know why you are investing, and the timescale of investment. Do you want to benefit from income now or in the future? Are you trying to build a property portfolio that will support you through your retired years? Do you plan to sell properties before you retire, perhaps to make a capital gain to meet other financial obligations?
Answering questions like these are integral to creating a property investment plan to get you to where you want to be in life.
2. Jumping in an investment without proper planning
You know about those online gurus with expert advice telling you that the first step is to start „right away”, making you feel that you are somehow missing the opportunity to make a great profit? Although their messages might be good for motivation, they can be harmful when it comes to investing (if you don’t know your goals and don’t have any kind of plan).
Real Estate investing is a topic covered extensively. In this endless forest of content, it is hard to separate people who actually have experience in property investing from ones that don’t. If you need a piece of advice it is best to consult with the people you know and you trust.
When you decide what your short or long-term goals are, start to gather the information that will help you fill the gaps in your knowledge and that will help you come up with a strategy and execution plan. If you are a beginner who would like to know more about property investing in Croatia, Move Croatia team will be glad to help you.
3. Hesitating too much
On the opposite of being too quick when it comes to real estate investments, there are people who weigh too many of their decisions. They tend to overthink before closing the deal, and before you know it someone else steps in and takes what turns out to be a great investment. Being cautious is a great trait in investing, but only if your cautiousness doesn’t become a fear that will overcome your decision ability.
You have to find a middle ground between jumping into new investments and being an overthinker. The best way to do it is to educate yourself. If possible find a mentor who will guide you on your journey to become a property investor.
4. Relying on your gut too much
There will always be people who attach themselves too much to their investment. While having a gut is not a bad thing, with all the available tools we have today it is good to follow the real data and to read the reports and reviews of other people.
There is so much information that can be analyzed: market data, neighborhood data, demographic data, trends, property data, cash flow, rental projections, etc.
So next time, instead of using your inner feeling only, try to back it up with some real-time data. They won’t give you a definite answer, but they will be a good indicator that you are making a good investment.
5. Poor due diligence
Have you ever thought of buying a property just because the price is a bargain? Well, in most cases that purchase turns into a nightmare because when the hidden costs start to dive out on the surface, you will be already thinking of putting the property on sale again.
When you don’t do your due diligence properly, you are likely to pay the wrong price or, worse still, buy the wrong property. Imagine buying a property for (private) retreats in the overcrowded tourist area.
In Croatia, there are still some properties that have legal problems with their ownership or building permits. Although these problems are gradually being solved with changes in the law, there are still pitfalls to watch out for.
Before investing, you must know where to invest and what type of property to buy. Then you must work out the cash flow, and be confident that the property will produce what you expect it to.
6. Doing everything without a team
If you are serious about real estate investing you should forget about the idea of doing everything by yourself. If your idea of real estate investing process is: 1. getting approved for mortgage 2. buying the property 3. renting it out – you should take one step back.
Instead of going through the whole process by yourself find people that can help you or a real estate agency that can cover many areas. Why? A great real estate agent will help you find a good property at a fair price. A great mortgage broker will ensure that you get financing at a good rate. A great lawyer will help you understand the laws (especially if you are investing in a foreign country). Now, try to imagine doing all this work by yourself. Get a team of experts you can trust. Having a team is often an important element that will decide whether you will be successful in property investments or not.
7. Poor financing
One of the incredible benefits of property investment is that you get to invest with borrowed money. Using a mortgage to fund your property investment allows you to profit from other people’s money. It could massively boost your returns and yield on your capital investment (the deposit). Get the financing wrong, though, and your profit could disappear.
When you invest in property using a mortgage, the interest payments are likely to be your biggest monthly outlay. But getting the best financing isn’t simply about getting the lowest interest rate. There are many other considerations to make.
8. Overspending on improvements
It’s very common for investors to overspend on renovations. In some cases, it happens because the renovations go over budget. In many cases, it’s because there wasn’t a clear plan or budget. But most of the time, the investor willingly wants to add new features to their property. They fail to analyze the impact the renovation will have on appreciation and cash flow.
Do your due diligence to understand what adds value to your property and what doesn’t.