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5 biggest Property Investing Mistakes to avoid

Property

Written by:

Jeffrey Ong

Are you interested in property investment but don’t know where to start? Well, you’re not alone. Many people are looking into investing in properties for their retirement or as a way of growing their wealth.

However, many first-time investors make mistakes that can cost them money and time or even take them out of the game!

Here, I share 5 property investing mistakes that you should avoid. I believe these should help you steer clear of some expensive mistakes.

If you prefer to learn from a video:

Let’s get into it:

1 – Never cut corners when it comes to professional advice

Paying experts is not a cost. Getting the right experts will not only cover the cost of their fees, they will probably even help you save money, or even make more.

The problem with ‘free’ advice

There’s no such thing as free lunch.

I think everybody needs to be paid for their time and sharing their knowledge.

If you are receiving advice or consultation for free, it could suggest that the expert you’re working with may be rewarded in some other ways – they could be earning a commission instead. This may not be a bad thing in itself. However, it could suggest that the advice you’re getting might be steered towards a certain project.

Would you end up paying more for a project, could a service be over-marketed? These are just some questions you should keep in mind.

In my opinion, when the expert gets paid upfront, I’m more likely to receive unbiased information and knowledge.

It may be more costly to learn on the ‘job’

When beginners attempt to reduce their investment costs, the most common mistake is to do everything themselves.

With a wealth of free information at our fingertips, many aspiring property investors assume that they can learn everything by watching some videos on YouTube or reading a free guide online.

If your pockets are deep, you can indeed pick up the skills and experience by doing it yourself.

However, most of us do not have such deep pockets. When it comes to property investing, many things can go wrong. And when they do, the price you pay is often hefty. If you buy the wrong asset class, you could be stuck with that property for as many as 20 years. And seating on a loss for that long can be very painful.

2 painful examples from my students

The most common scenario is when an aspiring property investor buy a shiny new apartment in a district where the locals prefer to buy houses that have “character”. You’re in the wrong market and it’ll be very difficult to find a buyer who is willing to pay you a good price. And it will be very painful to cut losses.

Another common mistake is when newbie property investor overpays for an apartment because they are not aware of the ‘market’ prices. It is common to end up paying a 20 to 30% premium that you’re may never recover for at least the next seven years.

A simple way to avoid this is to do a comparable study of the apartment prices in the area.

And if you’re working with the right experts, advisor or even mentor, they would be able to help you to valuate house prices and projects accurately. Oftentimes, working with experts could only cost less than 10 grand but overpaying or purchasing the wrong project could set you back by at least $100,000 or more.

When I started my property investing journey, I kept looking for experts to teach, guide and mentor me during my first 10 years. Yes, I had paid a lot of money to reach the stage where I am, but I have made so much more too.

If you’d like to learn from someone who’s been there and done that, I’ll be sharing my key criteria to choosing investment properties. Join me live and ask me anything there.

2 – Never fall in love with a deal

The best property investors always keep their impulses under the control.

The next good deal will eventually come by again. Hence, you should always be prepared to walk away from a deal. That’s the most powerful thing that you can ever do.

The way I view it is like waiting for a bus. Even if you miss one bus, sooner or later, there’ll be another bus that’ll come, and it could be just as good or even better. That said, when the right bus comes, you have to eventually hop on. You can’t be sitting at the bus stop forever.

Knowing when to hop on comes with experience.

Determine the fundamentals of the deal

However, getting emotional with a deal can often lead to expensive mistakes. Whenever you feel like you’re onto a very good deal, don’t jump into it immediately.

Personally, I defer to the numbers when it comes to valuating a deal. I look at these key fundamentals of the deal such as:

  • Potential cost
  • Potential internal rate of return
  • Qualitative analysis of the property – features, types of property, etc
  • Qualitative analysis of the location – city vs suburb, etc

Instead of investing on impulse, it’s better to sleep over it and work out the numbers. And then decide whether it’s a good deal.

3 – Never get stressed out by what you cannot control

In life, many things are beyond our control. Covid is one big example.

Insurance

I’m a big believer of minimising my risks and taking up every kind of insurance possible – building insurance, content insurance in cases of floods, rental guarantee insurance in case the tenant fails to pay, etc.

Even though I’ve never had to activate any of my insurance thus far, it gives me a peace of mind. And I don’t think they cost a lot, because if I ever find myself in a bind, I know that I have insurance as a backup.

Don’t over leverage

You should always know your numbers. Every deal has to be positive cashflow or at least neutral cash flow.

Poor planning and bad use of leverage can result in property projects becoming negative cash flow. Those are the worst situations to be in – you end up working for the property instead of having it work for you.

I’ve learnt that it’s better to set up your property investment projects in a way where your potential risks are minimised for a fixed upfront cost so that you can better spend your time on looking for the next project.

4 – Never get influenced by friends, family and media

Well meaning friends and family may not have the experience

Your immediate friends and family may have your best interests at heart, but often times they do not have experience in property investing.

Many of us grew up with the idea that you shouldn’t own too many properties, or that having one to two investment properties is good enough.

But successful property investors know otherwise.

In fact, the pandemic had messed up the plans of many small property investors because of this simple math:

Imagine if you rely on one investment property for income. If your tenant loses their job and can’t pay the rent, you now have to evict the tenant and deal with a 100% vacancy rate. Comparatively, if I have 13, 14 properties with over 50 rooms, even during COVID where I have 10 rooms empty, I’m still at an 80% occupancy rate and can cover the running cost of my property portfolio comfortably.

The key is not in the number of properties, but in the ability to maintain positive cashflow, even at the worst of times. Having multiple properties just makes it easier.

The media is just selling a narrative

The media is often times full of stories about how quickly house prices are going up or down but nothing is ever as good or as bad as it sounds.

In fact, when the media is bearish, it is usually a good time to buy. I bought two houses during the ‘bear’ property market last year and we’re seeing good progress today.

5 – Never work without a clear strategy

The best property investors have defined goals and strategy, they stay discipline and are not distracted by shiny new investments.

There are many ways to make money from properties

Like stocks, there’re many property investing strategies you could use.

Do you want to flip properties for a quick profit or do you want to buy, hold and rent properties for a consistent income? Do you prefer to invest in residential properties like I do, or do you prefer offices, commercial and industrial properties? Do you want to invest locally or globally?

Would you want to run an Airbnb, rent to rent strategy or even serviced accommodations?

Which property investing strategy do you want to adopt?

My preference

Personally, I prefer to invest in overseas residential properties that I can buy and hold.

I’m not for Airbnb. With AirBnB, you’ll have to serve a new tenant very frequently. And oftentimes, they do not care for the property. Damages could result in higher costs.

I prefer to take good care of my tenants, build trust and long-term relationships with them.

Many of my properties are residential. However, if you prefer industrial properties, you must make sure that it has positive cashflow and that there’s capital appreciation.

And if you’re investing abroad, make sure that you build that local knowledge in that few cities and build up a trusted team to work for you in the city.

Conclusion

In this article, I’ve shared 5 biggest property investing mistakes, I hope you’ve found them useful.

At the very least, they should help you save some tuition fees as a new property investor.

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