Investing in Properties? Check Out These 5 Do’s and Don’ts
Despite popular belief, investing does not always have to be complicated or challenging. Indeed, investing can be a smooth operation if you are systematically calculating the steps you will take in advance.
Still, it’s natural that you feel overwhelmed sometimes. Below you can find a compilation of things that you should and should not do as a starting investor to feel more confident when it comes to investing.
To avoid any confusion or mistake, it is essential to follow guidelines and get familiar with useful tips on your way to a successful investment.
- Know your costs and plan your spending accordingly. If you make your expenses unconsciously and unplanned, you might end up having spent much more than you have to.
- Learning market cycles theory can help you take your steps more confidently. With brief research, you can develop an understanding of when is the best time to buy in and sell out.
- Diversify! Asset allocation or portfolio diversification helps you reduce risk.
- Tax legislations differ from country to country. In fact, in some parts of the world, these regulations may even differ from region to region (i.e US). So, it’s beneficial to learn about local tax regulations.
1. List Your Costs
The number of expenses you will have to make might seem intimidating at first. But if you keep track of your expenses and list them, you will see that there is nothing to be afraid of. Knowing your expenses beforehand is crucial even if you have great amounts of money in your bank account because if you don't keep track of your costs, then it can cost you some precious dollars.
So, in order to take solid and confident steps while investing, listing the costs involved in the process can be an excellent method. Since the expenses you should make are not over once you purchase a property, listing the costs can help you save time, money, and energy.
Here are some expenses you’re likely to encounter while investing in a real estate property.
- Down payment of the property
- Restoration costs
- Utility expenses
- Yearly maintenance fees
Listing your expenses could be beneficial for organizing your budget and allows for longer-term thinking. So, give it a try.
2. Get Yourself Familiar With The Market Cycles
The real estate market fluctuates in a cyclical trend. And, to maximize your return on investment, the first step is to buy at the right market phase. You need to have some up-to-date knowledge of the market to establish that. Researching the “market cycles theory” would expand your horizons and help you understand which phase the market is in. The first phase, also called the accumulation phase, refers to the stage in which the market has bottomed and the prices are lowest. This is the best time to buy in.
A deeper understanding of the theory would also help you figure out the best time to sell and develop the best strategy for your investment plan. So, if you want to be a successful investor, get yourself familiar with the theory.
3. Broaden Your Investments
Successful foreign exchange investors never hold all of their assets in one currency type because any economic or political fluctuation can result in the devaluation of the currency. Instead, they invest different amounts in different currencies so that they could compensate for the depreciation of one currency with other currencies. In other words, the risk of losing decreases if you diversify your investments. This is also called “portfolio diversification” and applies to real estate investors as well.
You can diversify your real estate portfolio based on
- the type of asset (family homes, offices, warehouses, and other commercial units)
- the location of the asset (a loft downtown, a store in the suburbs…)
4. Carry Out Research About The Property’s Surroundings
Location is of great importance, no matter what type of property you are buying. And environmental factors are relevant not only if you’re considering living in your newly purchased property but also when you expect investment return from it. Therefore, in order to avoid both unwanted living conditions and a potential loss of value, it is essential that you do your research about the property’s surroundings and its location beforehand.
It is very likely to be tempted by low prices. But be aware that the low prices might be a result of bad conditions in the neighborhood, or some political instability in the region, all of which are factors that decrease the value of a property.
Before you make a purchase, be sure to have checked
- Geopolitical factors
- Crime rates
- Transportation opportunities
- Educational opportunities
- Proximity to service providers
5. Know The Tax Regulations
Real estate investors must keep up to date on new and developing tax legislation. Laws and regulations about taxation change depending on time and region; and following these changes can save you money. For example, some countries give tax incentives for investors purchasing their first properties. You should also be aware that income taxes differ from country to country. If you’re planning to buy a property for rental income, it would be wise to familiarize yourself with the income tax rates of the country in question and decide accordingly.
Small and medium-sized businesses are particularly dependent on reasonable tax rates. So, if you’re a beginner investor, taxes are even more relevant for you. You can work with a legal consultant if you want to be extra confident about your steps as a fresh investor.
- Have a backup plan- an exit strategy. This way, you can avoid the panic that you may experience in an undesirable situation.
- If you want your property restored or upgraded, get professional service in order to avoid any harm to your property.
- Set reasonable goals. Don't let unrealistic expectations disappoint you.
- Put your emotions aside when making a decision. Acting with strong emotions such as anger and greed or acting in haste can cause you to make wrong decisions.
1. Don’t Purchase Anything Without An Exit Strategy
An exit strategy's purpose is to mitigate potential losses. And it is used to end an underperforming business or sell off a non-performing investment. However, thinking about rainy days to come might be unpleasant and easily overlooked while you’re earning well. There are times that investors do not want to plan what would they do if they lose, and most of the time, they don’t develop an exit strategy until they see that they are losing. That’s because exit plans are seen as a way to shut down a business completely, and sometimes they are, but there is more to it.
Think of it as a backup plan, or insurance. In the ideal case scenario, it is a strategy that drives investments toward long-term targets and provides a shift to a new stage. Compared to being totally unprepared for the bad days, a plan to minimize a potential loss in an undesired situation would leave you with more strength and more funds for your future investments. Therefore make sure you have an exit strategy in place and don’t incur large expenditures before you secure yourself.
2. Don’t Restore Your Property On Your Own
Buying a real estate property and restoring it before renting or flipping it is a common practice to increase the value of the property. However, you should be careful since unprofessional intervention can damage and depreciate the value of your property. There might be some development ideas in your head such as painting old and neglected walls and covering them with stylish wallpaper, nonetheless, avoid making big changes that are more likely to necessitate professional intervention. For example, if you try to repair a troubled bathroom plumbing all by yourself, you may end up with a much more damaged property than before. So, don’t sow dragon’s teeth.
To eliminate restoration costs altogether, you can consider investing in a brand-new property if you can afford it. Brand-new properties might be expensive and therefore not look like a convenient option for a newbie investor at first, but if you consider that you will be free of all the renovation processes and costs, it’s actually a better and safer option.
3. Don’t Waste Your Time And Money With Unrealistic Expectations
If you are a newbie in investing, you should know your starting point and what you can achieve in the short and long run. Awareness is essential for setting realistic goals. It would not be wise to expect thousands of dollars just after buying a house to flip and double your earnings. This is also true for experienced investors. Successful investors analyze their starting point and calculate as many scenarios as possible to understand to what degree they can profit with how much capital.
It is especially risky to get loans before meticulously analyzing where you’re at while investing. Expecting an income of, let’s say, millions of dollars from flipping is not a realistic goal for many investors. So, getting a loan based on such a plan would probably result in failure. Therefore, you should keep your expectations realistic and phase out your steps.
4. Don’t Let Your Emotions Guide Your Decisions
Investing is a process that requires mental effort as well as time and funds. And, people can easily get overwhelmed and stressed out. Therefore managing investments requires emotional stability and patience.
Another common mistake through emotions is taking actions based on greed. To elaborate a little more, we can observe some investors' behavior while the market is at the markup phase. In this phase, experienced and successful investors cash out but people who have not bought in the accumulation phase start to worry that they are left behind. Clinging to that feeling, investors can make investments that might not be wise. This is an example of an action taken under the influence of rush and greed. So, try not to allow your emotions to influence your decisions.
5. Don’t Be Hasty
As humans, we seek instantaneous satisfaction by nature. That’s what leads us to impatience in most cases. While seeking instantaneous satisfaction can be beneficial to us in some contexts, success in fields like trade and investment requires patience. Fortunately, we can teach ourselves to be patient. While it is our instinctual drives that make us give impulsive decisions, learning to stay calm and avoid acting hastily is the key to successful and long-lasting investing.
It is a characteristic of impatient investors to make impulsive decisions and there is no room for impulsiveness in a successful investment. A successful investor knows that investment is a long-term process, and the rewards usually appear after a certain period. It is unavailing and sometimes damaging to try to hasten the rewards. You may lose your initial investment or get less than you expected. Therefore, don’t be impatient about your decisions, no matter how excited you are.
Now that you have your do’s and don’ts list at hand, you can feel more confident to take your steps in your real estate journey and Propline is here for you to support you with those steps. So, are you ready to expand your comfort zone?
What Should I Consider When Investing In Real Estate?
You should review your financial situation, the state of the market, and most importantly, factors related to the property's location such as educational opportunities and infrastructure.
What Is The Best Real Estate To Start With?
The best real estate option, especially if it’s your starting investment, is brand-new properties considering that you will be free of all restoration costs and it’s a more solid investment in terms of the property’s value.
What Kind Of Properties Are Best To Invest In?
Properties in countries like Turkey with a growing economy and an attractive real estate market are among the best investment options.
What Is The Fastest Way To Make Money In Real Estate?
The fastest and safest way to make money in real estate is to invest in properties in trending locations and get professional counseling in the process.