“The 7 Most Devastating Sins That Can Cost You a Fortune When Investing in Real Estate”
Most of us firmly believe that investing in real estate attracts tremendous wealth more than any other business in the world. You can look at the 400 wealthiest list by Forbes and see many of them are real estate investors, and they’ve made a tremendous amount of wealth from the business.
So, collecting wealth from the estate business sounds excellent; however, 87% failed to build wealth from the business within the first five years. The question remains why the vast number was unable to accumulate wealth. The answer lies in the top seven sins that most investors apply and then fail.
The seven most devastating sins that prove expensive in the real estate business can be deadly and catastrophic to your business. So, here are the reasons you should keep in mind before injecting hundreds of thousands of dollars into the real estate business.
1. Ignoring property location
Property location continues to play an essential role in accumulating wealth and value in the real estate business. Ignoring property location means committing the biggest sin while investing in the industry. Location is the key to evaluate property. Homes in cities that are smaller in size tend to be more valuable than households in rural areas with bigger city sizes. The more splendid location you have, the bigger chance your property has on future growth, and greater return.
It would be best to look at the neighborhood’s status, closeness to hospital, schools, market, transport, freeways, and tax exempted areas. While investing in an area, you must consider those factors; otherwise, you buy property, and no one will ever want it until it gets value in 100 years later. Till then, you will bear the brunt of ugly loss instead of making a profit.
2. Relying on future assumption
The assumption is merely a thought that is presumed to be right before making a decision. Most investors fail here because they buy property on expected future value. Real estate agents might compel you about the possibility of increasing the value of the property in the future. Still, they mostly ignore the ground reality and anticipate the future on merely assumption.
When the asset’s future value doesn’t mean an uptick, this takes your profit down to minus. The property will continue to hold your thousands of investments, and you’d never know how long you would financially bleed in the coming years and continue to have that asset, which makes losses rather than profit.
You really shouldn’t commit that sin and avoid such assumptions or advice from your agent or friend and make an investment in an estate on mere speculation that may cost you a fortune rather than secure profit.
3. Investment with poor diversification
All businesses need some diversifications to avert the risk attached to that investment. A similar theory applies to the real estate business as well. Many new investors poorly diversify their fresh start up; they put either most or all of their investment in a single estate unit, which is considered a low strategy in most business areas.
Investing in multiple properties means shifting the loss of one property to another and diverts the loss into profit. Single property investment means you are prone to the hazard of loss that always maximizes the risk factor.
This is the sin you really shouldn’t ignore while making investments in this sector. It’s essential to hold multiple properties as an investor and keep having the one which makes continuous profit and sell the one that keeps you on the bleeding phase.
4. Have the patience to build wealth slowly
One must understand that the road to success is always dull. An average entrepreneur moves to chase something new after being bored doing the same thing repeatedly. A successful entrepreneur keeps doing the same thing until he/she gets a master of doing that particular business. So, you have to be consistent in doing business until it reaches your regular cash flow.
“Sound investing can make you very wealthy if you’re not in a big hurry.” Said Warren Buffet, CEO of Berkshire Hathaway. Another famous quote by J. Paul Getty, “Patience; this is the greatest business asset.”
If your raw land or other property generates low income, you should look into the different strategy doing the same stuff rather than completely change the business. So, learn the art of patience in the industry and unlearn the impatience you have before. This is one of the sins most of us commit while doing estate business. The business needs your full-time attention with no distraction to any other business. So, avoid this!
5. Never over-leverage yourself
It simply means doing more with less, work smart rather than hard. Work smarter means here that don’t plunge into the property’s debt that can’t maintain returns. If you are financing the property or land with zero or less income source, then it’s dangerous to be kept on the winning edge in the business.
You may be included in the failed real estate investors’ never-ended list because of doing the over-leverage sin. You’d see many bankrupt investors who have done the same sin and never return to normality. So, understand the concept and how to do never over-leverage yourself and stop to be included on the bankruptcy list.
6. Gaining knowledge is more important than early action
Like successful writers, they think before ink. Similarly, successful investors learn the knowledge or art of doing business then do action to finance it. “A little knowledge is a dangerous thing, but a little want of knowledge is also a dangerous thing.” Said Samuel Butler.
Business knowledge is an important asset; it keeps your business afloat with sustainable growth and efficiency. Without proper estate knowledge, you will stumble and never go through in the appropriate direction.
You must not commit the sin of investing in a business you don’t know it altogether. You must understand the nature and the scope of the business before jumping into it. Like how you’d make a profit if you invest in a land that proves worthless, but you didn’t know prior? You’ll only make a profit when you know what you’re doing.
7. Consider historic performance
When investing in stocks, we analyze past performance; when buying currency, we consider historical performance too, but when purchasing property, the majority of investors fail to consider the past growth and performance.
Historic performance indicators of a land or property mean how it played in the past, whether it generated sustainable revenue or bleed the investments.
Past or historical performance is helpful to gauge the investment spot to ensure its sustainability in terms of growth and revenue. It’s also equally important to consider the long-term horizon of that property.
Property’s track record of its past could be a perfect performance indicator, and it helps us to understand whether we really should consider the property for investment or leave it as it is. As an investor, you must not ignore the historical performance of the property you intend to buy. Otherwise, if you buy the property without looking at its past performance, it will become absolute at one point, and there will be no way to return.
Conclusion
Accumulating profit from the real estate business isn’t rocket science. However, you must not commit the seven most devastating sins that may cost you an expensive property that becomes the cash outflow source rather than cash inflow. We do real estate business for profit; no one does it for losses. So, it’s essential to consider those seven factors listed here before investing in the business – whether you chose to invest in rental property or BEIT or any other estate entity.