Venturing into things for the first time can be daunting. The nervousness and inexperience that comes with being a rookie leads to making mistakes that become experiences to learn from. Real estate is an asset that requires proper research and an understanding of how it works before venturing into it. Many first-time investors are not equipped with the right knowledge about the real estate market and so they end up making expensive mistakes given the high-ticket nature of real estate properties.
Rookie Errors in Real Estate and what first time investors should do
- No clear goal
Investing in real estate should not be for just investing, it should be purposeful. Not having a clear goal for investing in real estate is one of the common mistakes first time investors make. They invest in real estate either because others are doing it, or they just think it’s ideal.
One of the first things to do before investing in real estate is to clearly define your reason(s) for investing. While some people invest in real estate to become homeowners, others invest for commercial purposes. Defining your reason for investing in real estate will inform how you will invest in real estate.
Research – Proper research is necessary to successfully invest in real estate. The rules guiding real estate investment depend on the market or locality. For example, in places like the US, different states have different rules on real estate. This determines how investors invest in real estate. A rookie who doesn’t understand the real estate market in the area he/she is trying to invest in, will make the wrong choices. Thorough due diligence is a key part of investing in real estate, and it starts from proper research.
Understanding how the real estate market works in the locality you are investing in is key. Research, read, and consult experts before venturing into the real estate market. This will help you identify the risk and rewards that come with real estate investing and equip you to properly navigate the market.
- Investing Emotionally
A lot of investors invest based on past experiences and emotions. For example, a person who had accommodation challenges while growing up will be zealous about owning a home. This sentiment can push such an investor into making wrong decisions when investing in real estate. Some investors also make real estate investment decisions based on their emotional attachment and what they think about a locality without trying to understand how real estate works in that environment.
- No Due Diligence
Real estate investing requires proper due diligence. Besides finding the right property, ensuring there are no encumbrance on the property is very important. Carrying out due diligence will require an investor to do a search on the property at government housing institutions or hire a surveyor to do a survey depending on the location. Ignoring due diligence can cause the investor to lose the property in the future.
Every form of investment requires due diligence. In real estate investing, investors should carry out the required checks to ensure they are buying the right property. While investors in developed countries can easily access information on the property of interest online or at designated offices, those in developing economies will have to go through lawyers and surveyors to gain access to information verifying the validity of a property.
- Inadequate Financial Preparation
In countries where investors have access to mortgages, rookie investors might make the mistake of signing up for the wrong kind of mortgages. For example, adjustable-rate mortgages and interest only loans are mortgages that move together with interest rate. If interest rates are high, the interest rate on an adjustable-rate mortgage will increase and vice versa. Investors who sign up for this type of mortgage will pay more when interest rates are high. In countries where payment for real estate properties is done in installments, investors may lose the property if they default on payment.
Real estate is a high-ticket asset and not every investor can afford it. While some investors may have access to mortgages, others do not. In investing in real estate, investors need to assess the financing options available to them. There are different types of mortgages, understanding how they work will guide you in picking the right one. Investors may have to work with financial advisors or realtors in picking the right mortgages.
Investors in developing economies must ensure they are financially prepared before opting for installment payment plans. Those who cannot afford this can join investment communities or come together with family and friends to co-invest in real estate. Terms of investment must be clearly stated before co-investing in real estate properties.
- Understand the available investment options
There are a lot of investment options when it comes to real estate investing, understanding the available options and which is most in-line with your investment goals will guide you on your real estate investment journey. Investors who do not want to be actively involved in managing their properties for example can choose to work with facility managers or invest in real estate investment trusts (REITs) and real estate funds. These investment options are passive ways of investing in real estate.
Wrapping it up
There is nothing wrong with being a rookie investor, you however do not want to be the one to create the experiences others will learn from. It is therefore important that you equip yourself with the right knowledge and work with the right people to get the right results.