Many investors set out to make it big in real property investing. However, very few will succeed beyond their first investment, and even fewer will create real wealth by climbing the ladder.

Our property markets are booming, but this will not give investors a false sense security. There will be more traps as we move into the next phase in our property cycle than ever.

There will not be a single property that increases in value at the same time. Additionally, affordability constraints will mean that some properties will have increased in value in certain locations. Beginning investors cannot expect the market to do all the heavy lifting, which means that careful asset selection and the right team will be crucial.

Here’s a guide for property investing for beginners.

This article will discuss 10 common mistakes made by investors and offer tips to help you overcome them so that you can win big in real estate.

1. Heart over Head

About 90% of the decision to buy a house will be based upon emotion, while 10% will be based on logic.

It’s understandable. Your home is where you will raise your family, and it is your sanctuary.

Avoid letting your heart dictate your investment decisions.

If you allow your emotions to cloud the judgment, you’re more likely to buy too much and not negotiate the best price and outcome for your investment goals.

Property investors who are just starting should do their research before buying a property.

What is the demographic makeup of your local area? What will this mean for the capital gains or returns you desire?

It is the ideal location to attract quality tenants.

Tenants who can afford to pay more rent over the years than tenants who are just a week from bankruptcy will be able to do so.

It will appeal to the owner-occupier segment that supports property prices over the long term.

Answering questions such as these will help you think based on financial gain and not personal feelings.

Investing is about finance, economics, and demographics. It’s not about emotions.

If property investors start investing without a plan, they will fail.

This is a common saying, but it’s very true.

Most property investors are looking to build a profitable portfolio.

One that will allow them to have financial freedom and make their own decisions in life.

But, if you don’t have a plan of action, it’s like going on a road trip with no map. You will undoubtedly make a wrong turn and get lost.

It’s not just a matter of luck, but a plan that is well executed will bring you wealth.

Planning is, in reality, bringing the future into the present so that you can take action now!

You must set goals and determine where you want your wealth to go before creating a plan.

It is important to consider both the long and short term to ensure that your investment decisions are compatible with your overall strategy.

Determine what you are looking for in terms of income. Are you looking for short-term returns or long-term capital growth? If so, how can you best manage your cashflow to be a smart investor.

Which type of property are you looking for to achieve your income goals?

You will be exactly where you want to end up if you have a well-planned outline of your investment journey.

Plan your actions and then activate them.

Metropole’s independent property strategists can help you create a personalized Strategic Property Plan.

A Strategic Property Plan will increase your chances of achieving the financial freedom that you want. We’ll help you.

• Define your financial goals;
• Consider whether your goals are achievable, particularly for your time frame.
• You can measure your progress towards your goals, whether your property portfolio works for you or not.
• You can maximize your wealth creation by purchasing property.
• Recognize risks that you didn’t know about.

The real benefit is that you will grow your wealth through your property portfolio quicker and more safely than an average investor.

Find out how you can benefit from a Strategic Property Plan.

Do you dive in or do you dither?

Budding real estate investors often fail to make it past their first property, or sometimes they never make it past their first. These traits include being too impulsive or being cautious, and not acting at all.

The first is being too fast.

They believe they must have it all today.

They go to one seminar, and they buy into the first scheme that’s presented without really thinking about it. When it doesn’t work out, they give up and throw in the towel. Property isn’t for their taste.

They are the second group of procrastinators, and their worst enemy.

They view all the webinars, listen to all of the books and watch all of the videos. But they are overwhelmed with information and are unable to take action.

This is called paralysis by analysis.

Although the former may learn from their mistakes and make profitable investments, the latter will not overcome their fears.

You can only find a happy middle. Learn as much as you can to help you feel comfortable about your investment decisions, but don’t expect to know everything before starting.

There will always be something more to learn, and it is best to get lost in the game.

Many investors question whether it’s the right time to invest or wait for the market bottom because of all the property pessimists and negative media.

Do not try to time the markets, even experts can make mistakes!

It’s understandable why investors think that it’s right.

Many financial planners advocate ‘when to’ investments, and this means that you need to know when to invest and when to sell.

These investments are crucially timed: You will do well if you buy low and then sell high.

Your money could be lost if you make the wrong timing.

Futures, futures, and commodities are a good choice for ‘when to’ investments.

I’d rather invest my money in a ‘how-to’ investment such real estate. It’s stable in value and doesn’t fluctuate in price (if and only if you purchase the right property).

However, leverage is still powerful enough for wealth-producing rates of return.

Timing is still an important aspect of ‘how to’ investments but it’s not as important as how they are bought and add value.

Although they are not liquid, ‘How to’ investments can produce real wealth.

While most ‘when to’ investments (like the stock exchange) only produce a few large winners, there are often millions of losers. Real estate, on the other hand, produces millions of rich people and very few losers.

However, timing is key in property investment. If you purchase at the right time during the property cycle, you can greatly accelerate your investment returns.

Speculation on Patience

Many property investors who are just starting hope to be overnight millionaires.

They believe that the property will solve their financial problems quickly. But, the truth is that short-term investment in real estate is more about speculation than strategic investing.

It takes property investors between 20 and 30 years to accumulate enough assets to allow them to have substantial financial freedom.

It’s not as simple as purchasing a property and living off the cash flow.

There is no way to make quick profits by buying real estate. The majority of property flips fail.

Selling real estate takes time. There are also many costs, including capital gains taxes.

While some may see this as a weakness, I see it more as a strength. Because the property is a proven commodity we all need, it can deliver steady, long-term returns through the power compounding.

This means that you leverage the gains from one property into another property and buy more properties to increase your portfolio.

You can borrow money from banks to do this.

This ability is not available in any other commodity.

You will be more successful investing in property if you approach it with patience and persistence than if your goal is to find the next big thing.

You can only make it to the top by securing high-performing, long-term property that is reliable and profitable.

Below is a chart by Stuart Wemyss that shows the distribution of median house prices since 1980.

A growth cycle usually lasts between 7 and 10 years. A growth phase is usually followed by a period (7-10 years) with little growth.

Over the past 38 years, each capital city has seen an average growth rate of 7.30% to 7.96% p.a.

This means that there isn’t much variation over the long-term.

The variation in growth rates over a long time highlights the cyclical nature the housing market. With dwelling values rising at different rates from one region to the next and for different periods, it is clear that the market is cyclical.

What’s next for property values?

If property prices grew at the same pace as the past twenty five years, Australia’s median home value would be $2.9 million in 2043.

Although the past may not always be the best indicator of the future, it is a useful benchmark to see where housing values might be twenty-five years in the future.

Suppose national house prices rise at 6.8% annually over the last quarter century. In that case, 2043’s median national house value will be close to $3 million ($2.93), and the median unit price will be just above $2.1 million ($2.15).

Not doing your homework

It takes time to understand the property market.

Many experts struggle to understand the cyclical nature real estate.

Don’t assume that you can just attend a few seminars or read a few books to know exactly what to purchase.

You can search an area online or visit 100 locations that are open for inspections. Problem is the lack of perspective, which money cannot buy.

This is where most investors make mistakes. There’s a huge difference between understanding your local area and investing fundamentals in your property market.

Metropole’s independent team of property agents and strategists is helping homebuyers and property investors to level the playing field.

Leave us your information to arrange a free, no-obligation session with one our property strategists. We will discuss your needs and help you create a plan.

Buying the wrong property 

This is undoubtedly one of the most costly investment mistakes of all.

First, you need to find the best investment location. One that is more profitable than the averages due to gentrification or where wealthy owner-occupiers are looking to invest.

You will then need to purchase an investment-grade property that is in constant strong demand by both the owner-occupier and tenants in the future.

There are close to 10,000,000 properties in Australia, and less than 2% of these properties are investment-grade.

Poor cash flow management

As a property investor, it is easy to fall for poor cash flow management.

It can be hard to understand all the costs associated with acquiring and maintaining property. To ensure that you are financially prepared, you should consult a professional accountant familiar with real estate investing.

Also, ensure that you have the financial ability to keep any property you purchase.

Also, what amount of income will your investment(s), and is it enough to cover your expenses?

Can you handle any shortfalls?

Remember to factor in contingencies such as unexpected maintenance costs or extended vacancy periods.

It is a good rule of thumb to allocate 10% of the property’s total value for costs like rates, taxes on land, insurance, maintenance, management fees, etc.

Although it is great to imagine the wealth you could make from real estate, it is important to be open to the possibility of unexpected expenses.

Analyze each investment and make sure you have sufficient allowances.

You can avoid unpleasant surprises by underestimating your income or overestimating your expenses.

Financing faux pars

Real estate investing is not a game. There are some houses mixed in.

A professional mortgage broker is the best option for property investors who are just starting.

It can be difficult and time-consuming to do it all alone. Obtaining the right finance type can help you save thousands.

An incorrect financial structure can affect your investment efforts as choosing the wrong property type.

There are many things to consider, and a knowledgeable broker about investment can help you make the right decisions.

Not being thorough

You’ve finally found the perfect property. Now you are ready to move.

Are you sure that you have done all the research possible on this investment?

What do you think the vendor is selling?

It can make a huge difference in negotiating a fair price by understanding the motivation of the vendor.

Look for clues during the inspection about the vendor’s circumstances. Are they currently going through a divorce?

Although it may sound unprofessional, it allows you to purchase a bargain and allows the seller to continue their life.

Are you aware of any structural problems or signs of pest infestations?

These fees are not subject to tax and you can save thousands by paying $800 for peace of mind.

Is the property tenable?

You won’t live here, but someone else will and they’ll pay you.

Consider the following: Is the floor plan attractive? Will the property provide a comfortable and practical home?

Always conduct a second and a third inspection at different times during the day.

Are peak hours noisy? What is the effect of light work on different times? Do the neighbors party animals? Or are they quiet?

You will always get the best investment if you check all the boxes when inspecting a property.

Self-management is a way to save money

Now it’s time to get started!

Many investors believe that self-managing their portfolio will make them more money, which means finding their tenants and managing their property.

Wrong!

This may seem reasonable in the short-term, but what about when you have a portfolio that includes twenty properties?

This is essentially a full-time job that involves the management of a portfolio.

You must find and qualify the right tenants, be familiar with the laws and regulations relating to renting, understand the value of your property, inspect it regularly to make sure your tenants are taking care of it, collect rent, represent yourself in tribunal if necessary, and be available 24/7 to your tenants.

Does that sound appealing? It didn’t sound appealing to me.

A professional property manager will manage all these details for you. This will ensure that you get the best results possible for your rental property regarding good tenants and high returns. It will also help you to save time when investing.

You could spend your time managing your properties more productively. Find new investments that will increase your wealth and add value to your portfolio.