Despite the twists and turns that the US economy has made since the banking crash in 2008, real estate investors still believe it’s one of the safest places to put your money. We’ve yet to see if the Trump presidency will give American industry the spike his advocates have claimed is due any day, and the Bitcoin bubble seems poised to burst at any moment, thus real estate offers (comparatively speaking) less risk of unpleasant surprises in terms of economic fluctuations.
Still, the relative safety of this sector doesn’t mean that real estate investors are completely insulated against misfortune. Very often new real estate investors will come to the market with unrealistic expectations, or an overly simplistic view of the market. This can lead them to make some egregious schoolboy errors when it comes to building their property portfolio.
If you’re serious about getting into real estate be sure to avoid these common pitfalls…
Focusing on a short game
What do all “get rich quick schemes” have in common? They’re all bogus! If becoming a millionaire in a short space of time were easy, everyone would be doing it. The truth is that real estate is a long game.
Many new real estate investors assume that they’ll be able to flip properties quickly and easily, but flipping a property requires a sizable upfront investment that could take a very long time to pay off. Thus, your real estate development career could be quickly cut short and leave you with a money pit that you just can’t sell. Focus your attention on the long term and you’ll never be disappointed.
Getting emotionally attached to a property
Just because you won’t be living in your property doesn’t mean that you can’t fall in love with it. Check out Discover Homes and you’ll see a sizable range of properties that you’d be proud to own as an investment or as a primary residence. However, it’s not uncommon for neophyte investors to put all of their money into developing a property that becomes ‘their baby’. They see all of their own hard work and effort reflected in every fixture and fitting.
While there’s absolutely nothing wrong with taking pride in your work, it can become detrimental to your portfolio. Emotional attachment to a property can cause you to refuse perfectly reasonable offers or cling to a money pit that stopped being profitable months ago.
Under (and over) diversifying
One of the steepest parts of an investor’s learning curve is managing the fine line between over and under diversifying. A property of a certain type in a certain area may generate a significant yield for you month-on-month, but tempting as it may be to double or even triple down on this type of investment, you could end up putting all your eggs in one basket.
Likewise, spreading yourself too thin over a range of properties and areas can potentially impede your yield. Managing this balance will be the key to building a reliable portfolio that’s insulated from the effects of dramatic change within one area while remaining diverse.