Countless of people have been known to have made their fortune through real estate investing, and you might have heard of a friend, relative or colleague who likewise, have achieved a significant increase in their net worth when they sold off a property they have invested in years ago. Others have found financial freedom through their property investments, as their portfolio of well-chosen properties has given them a sustainable flow of rental income. Robert Kiyosaki of Rich Dad Poor Dad fame is one of the major advocates of property investing.
However, just like investing in any other assets, investing in real estate requires thorough planning, preparation and implementation work. Here are some common pitfalls to avoid before you invest in your first real estate.
Pitfall #1: Investing in real estate is not a get-rich-quick scheme
Investing in real estate is often promoted as a get-rich-quick scheme by the so-called gurus of real estate investing. However, this cannot be further from the truth. It takes time to pick a great property that will appreciate in value, and in the event if you picked the right property, more time is needed for it to appreciate in value. And just in case you are wondering, the flipping of properties in an attempt to get rich quick can be a risky endeavor!
Pitfall #2: Not doing a thorough preparation and research
Real estate as an asset class works just like any other long-term investment, you will have to plan in advance, work hard to search for worthy property deals (or get a property agent to do it for you), understand how a property can fit into your investment plan, calculate the cash flow that can be derived from the investment, and the list goes on.
Furthermore, unlike liquid assets such as stocks real estate constitutes an illiquid asset class. This means that it is difficult for you to liquidate this asset immediately without the risk of suffering loses to the actual value of the asset. Thus, a more thorough research is needed to justify the investment.
Pitfall #3: Not doing due diligence
Not all properties will appreciate in value over time. Factors such as the future development plan of the vicinity, the population trends of the city, the economic health of the city or country all contribute to the viability of a property investment.
Unfortunately, new investors make decisions to buy properties based on ‘gut feeling’ or on a vague idea or belief that the given properties will appreciate in value. They buy it based on the sales pitch given by their real estate agent. They don’t do their due diligence about the deal, the costs or the market conditions, and they wind up draining their personal savings because the house needs extensive repairs or they can’t sell it.
These are the three major pitfalls of investing in real estate. Read widely and research thoroughly in the property you are keen in investing. If you can commit to thorough research before committing to a property, you will avoid the common pitfalls that has plagued investors and radically increase your probability of making a successful investment.
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