Real Estate Investing
MODULE 2: Real Estate Mistakes and Frauds, Lesson 2
9 Mistakes in Real Estate Investing
Adnan Ul Haq
Module 2:Real Estate Mistakes and Frauds
9 Mistakes in Real Estate Investing
Adnan Ul Haq
There are many mistakes that people make when it comes to real estate investing. Some of the most common include failing at marketing, not knowing where their money should go and how much is enough for taxes or closing costs, etc.
Here we are highlighting the mistakes that are commonly committed by people while investing in real estate:
Avoid Pulsing Buying-Selling
The real estate market is always changing, so you should never buy or sell a property by only looking at the people. Instead, your decision should be heavily based on whether its value is being appreciated or if it has an increasing buying trend. Otherwise, you may face loss if you follow other people's footprints.
Therefore keep an eye on market trends and make decisions accordingly.
Emotions are Enemy
Investing in real estate is not an impulsive or emotional decision but one that requires careful consideration and planning. It's important to invest when there are opportunities for the greatest return on your investment as well as stability of market conditions. So you can avoid any potential losses from buying too early or late without considering the market.
The price trend of the property faces 4 major phases. It starts from the bottom phase, then there is a markup phase, then there is the highest phase of distribution, and then the prices fall again in the last phase. So, you have to invest at the right time in the right phase.
You need to ensure that you sell when the prices are highest and wait when they are at their lowest. Always proceed according to a strategy.
Not Asking the Right Questions
We all know that the seller's market is a buyer’s paradise. However, there are some questions you should be asking them before making an offer on their property. For instance,
- From where was this property bought?
- Why was it bought?
- When was it bought?
- How ideal is the location?
- Who was the owner before?
You shouldn’t shy away from asking all these right questions.
When you are buying a property, you should do due diligence and ask as many questions as needed. In fact, you should maintain a checklist before buying a property and tick mark the queries that have been answered before finally deciding to buy a property.
Buying on Rumour and Selling on News
The strategy of buying on rumors that prices are expected to go up and then selling with news when their prices are at a peak is a profitable practice among investors. This technique has been used many times over the years because people know how important it can be to make money off your investment quickly!
This is because the market builds up according to the rumors, so more and more people start buying properties, and their prices start to increase. The day the news is circulated, the rumor and speculations are put to rest, and the property prices have already reached their maximum high.
You should wait for the correct time to sell and buy in order to earn full profit.
Don’t Invest in Fake Assets
Don’t invest in fake assets but only in real assets. There are three tests to establish that an asset is real. These include the check for its expenses, cash flow, and sustainability.
When investing in property, it's important to make sure that the returns can be gained from possible sources such as rental income so that buyer has a reliable source of cash flow.
Investments based on speculations are horrible. This means that you invest by following a trend or the price hike rather than checking the fundamental specifications of the property. You should always invest by looking at the fundamentals of the property like its location, probability of price appreciation, etc.
Not Understanding Inflation
You need to understand inflation. Mostly, the value of the money in your banks keeps decreasing because the money is only resting there. However, you should invest the money in such an asset or a property that overcomes the effect of inflation and the value of your capital increases.
It is important to note that the same amount of money today can buy more properties and assets currently won’t be able to do so in the future due to inflation. So, you need to understand inflation for investing smartly.
Not Defining the Area of Competence
You should define your area of competence. This means defining the area in which you are an expert because you can not be an expert in everything and every field.
If you define an expert area and keep working in that area of property or location, then you will gain a grip on the property in that area. You will understand the price values, the issues and hurdles there, the required documentation, and other such things. Through this, you will have a complete know-how of that area, and you will become a renowned person in that area as well.
On the other hand, if you keep wandering at multiple locations, then you won’t be able to generate the profits like an area expert.
Not Understanding Market Frauds
The functioning of real estate markets is a crucial factor in determining future growth and development. A clear understanding of these factors will help you make informed decisions when investing in a property.
You need to know the kinds of frauds that are being done on the property, price trend, and the market. While making an investment, you must analyze the market, get accurate pricing from two to three sources, and read the documentation clearly to avoid any kind of scam or fraud.
Not Understanding Laws
Similarly, you need to understand the laws and government policies and should remain updated about the developments in the policies or taxes. For example, if there is an amnesty scheme coming or not, that will lead to an increase in property prices. Or if there is some development going to start that will affect the taxes etc.
The path to success in real estate can seem daunting, but there are steps you need to take before initiating investments. If you keep in mind these mistakes and do your due diligence well before investing, then your investment surely will earn heaps of profit!