This is part two of our review of common property investment mistakes which can prove to be extremely expensive even though they can be simply avoided. So, aside from failing to plan, a get rich quick mentality, overpaying for property and a lack of due diligence, what other pitfalls should property investors try to avoid?
Late to the property investment party
How many times have you seen property markets move to levels which are quite simply unsustainable in the longer term? How often do you see these markets continue to rise as investors jump on board looking to maximise their short-term returns? If you are one of many investors who follow short-term trends then you need to ensure you are never late to the property investment party. Before you invest, take a step back, look at the figures and check the affordability ratios before you commit your funds. Above all, be honest with yourself!
Unwilling to take a loss
Whether it is a false hope of recovery or a threat to your ego, the property investment arena is littered with investors who were unwilling to take a loss. You need to re-evaluate your property investments on an ongoing basis and where you see a change in trend you need to act. Some investors will work on a 10% loss trigger which will automatically see them sell a property which has fallen in value by 10% or more. This is fairly easy to do with the likes of stocks and shares but not as easy to do with property investments where prices can move fairly quickly. However, if you are to be successful in the property investment market you need to learn to take a loss.
Too quick to take a profit
While many investors find it very hard to take a loss, many investors are a little too quick on the trigger to take a profit. There is an old saying in the investment world, cut your losers and run your winners, which is perfectly applicable to the property market. In the real world there is nothing wrong in taking a profit but if you have a type of property which is in demand then why should you be in a rush to dispose of it? If you have a property with an attractor rental yield, which complements your overall cash flow, should you really be in a rush to give this up?
It may seem a little harsh to suggest that many investors are unwilling to take a loss for reasons of ego, and too quick to take a profit in order to “bank a gain”, but is it really that far from the point?
If it looks too good to be true….it probably is
Sometimes you will come across investments which are above board and offer an attractive return in the short term. However, there will be many occasions when you come across an investment which looks too good to be true but which you buy into anyways. If an investment does look too good to be true then it probably is too good to be true and you should be extremely wary. Do your due diligence, check the history of the property and ensure that all of the paperwork and registration are in place. Even though property market regulations have been tightened in recent times we still hear of scams and frauds which have left many investors financially destitute. We are not saying that all property investments which “look too good to be true” are fraudulent or deceitful but if you dig a little deeper you may find some underlying reasons.