By Michelle Lim on Jun 17, 2019, 7:10:00 AM
Let’s face it, we’ve all been there. Whenever we start something new, it’s like entering a strange new world. We don’t really think about the risks (potential or not) and usually just end up exploring out of curiosity. And we make mistakes. We fall, we hurt, we pick ourselves up and move on.
Exploring and experiencing it for yourself is usually much better than devouring books and relying on theoretical knowledge. Sure, it’s good. But a lot of times it isn’t really the same as real-world experience.
Analyzing too much also doesn’t really help either cause you end up getting stuck in a stalemate...or as we call it, a rut. A phase where you just analyze and analyze and get caught up in worrying about the potential risks and consequences.
Property investing is a rapidly evolving market that many are flocking to like bees to honey. Some end up making a lot of mistakes, avoidable mistakes - like not researching enough, not planning enough or having back-up plans, or asking for advice from real estate professionals.
Mistake #1: Not understanding and knowing your financial state
Many people don’t analyze their financial status properly and end up biting off more than they can chew. Which can potentially lead to even worse finances and maybe even getting bankrupt (*cough* worst case scenario-wise).
You usually want to gain financial independence, with good passive income by investing in real estate by the way. It’s like climbing a mountain or working your way through to become a published author. You need to cross your obstacles. In this case, it would be increasing your rate of savings.
Mistake #2: Not budgeting well
Some borrow too much, or too little that they end up not being able to maintain the property. Or, they don’t track their expenses and find out they don’t have enough cash at the last minute. It could be that they also have a habit of buying things impulsively… well, you get what I mean.
Consider unexpected expenses, or putting a fixed amount into emergency funds in case of emergency repairs or something. 3 months’ of additional funds is a good start into maintaining your rental property.
3 months of funds (minimum, by the way) = good buffer~
Mistake #3: The classic “Aiyah, I forgot to plan.”
Investing in real estate is a long-term commitment. It is a long-term relationship. You can’t just magically wave your hand to make everything better or expect immediate passive income at a high rate (we wish...and can dream *cough*). The market can be volatile; unexpected things can happen (i.e: Economical Crisis of 2008) and other factors… It’s always better to have a back-up plan. If not, two back-up plans. Or more.
A couple of strategies you can consider is:
- I just wanna be stable: where your aim would be wanting to earn extra income and avoid losses
- Maximum 100% saver: minimize and reduce expenses all for the purpose of savings...which speaks for itself. (Save, save, saveeeeeeeeee!)
Mistake #4: Using emotions to make decisions
No, no and no :( Using emotions to make real estate decisions...much less investing is a very bad way to go. Seriously don’t recommend this… Check out the numbers and figures as a starting point for any and all decisions about investment. Get advice and a different perspective from someone (even better if it’s someone who’s in the real estate industry or someone who has invested before!) It’s understandable that you want to invest because you like it, but you gotta ask yourself:
- Is it going to be worth it?
- Am I too emotionally invested in it?
If you are, breathe. Take a deep breath and force yourself to look at it objectively. Look at your financial status, consider if you have enough money as buffer (e.g: enough money to cover 3 months’ costs as emergency funds) and if you have a back-up plan (or multiple back-up plans!) in case things go wrong.
Motto: better be safe than sorry!
Mistake #5: Investing in a place farrrrrrrrr away from home
A long, long time ago… in a land far, far away… a house was bought as an investment for passive income. Eventually, things crumbled, the house fell into a state of disrepair, and finances went bad.
Sounds like a nightmare isn’t it?
Investing in a place that’s further might sound good, but is riskier compared to investing in a place near your home. This is cause you would have a better knowledge of the market and area that your home is in compared to an entirely new and different area. So if you’re a newcomer to property investment, it’s better to start out near :)
Though, if you want, you can just advertise and we’ll do the rest for you. Seriously.