Following others blindly.
This just drives me crazy. Many of you know, I ran an exhibition company where we did real estate events, trade shows around the world, and I would watch people come in groups and one person would buy a property and another person would buy the same type of property on another floor, maybe in an apartment building because their friend bought one.
For me that doesn’t make sense – no two people are the same. Just because someone you know is buying something somewhere, it doesn’t mean to say that you should. It might be a good deal for them, it might be a horrible deal for you. All of us have different risk appetites. All of us have different financial positions. You might have kids; they might not have kids.
It’s very important that you understand your risk appetite, where the market is, how much you can afford to lose rather than looking at what your friend is doing.
Thinking the market will always go up.
This may seem obvious, but when I look at how people are investing and the strategies that they follow, they’re buying off plan or they’re buying with very little focus on how much money the properties making on a monthly basis and this tells me that they are the optimistic type. The minute you remove focus from cashflow and focus on the equity growth angle, that only happens when the market is on the upswing.
“The market goes up, of course, this happens from time to time, but the market goes down as well.”
I’m talking here to those investors who just buy but they haven’t really got a good deal today, they haven’t really done their research and they’re just hoping that the price is going to be higher later. That of course is like gambling or speculation, so don’t do that.
Expecting the banks to never change their interest rates.
In some parts of the world, you can fix your interest rates for the life of the mortgage but in most places, you’re going to have a variable interest rate.
When you take out the mortgage, the bank might say for example, it’s 5% and you do all your calculations on 5% and it’s a great deal!
Then of course, the banks can change their mind, the reserve rate can change, the government, the central bank’s rate can change, and that interest rate might go up to 7% or 8% who knows? So, it’s very important that you factor that in when looking at your calculations.
What if the interest rate goes up? What if my rental income comes down? In a previous article I’ve talked about the I:E ratio and knowing your I:E ratio on a property is so important because interest rates do change, rental income does come down. So, thinking that the interest rate is going to stay the same is a mistake. Factor in all those what if’s think about what could happen. Plan for the times that the market is going to down.
The primary cause of to a downturn in the market is a lowering of demand. But what causes a lowering of demand? Its interest rates going up. So, look at your investments and work out your breakeven point. Think about taking action and getting out of an investment if you don’t want to stay in it.
Remember, nothing is fixed.
The real estate or property markets are very fluid and it’s down to you to control it. Someone is controlling every transaction, the value, how much the banks can lend you, how the deal’s put together, and if it’s not you, then it’s somebody else.
By taking control, once you understand the real estate market, you begin to understand how to be creative. You can do some amazing deals, but people just seem to accept what the bank tells them as fact.
There is no law anywhere in the world that says you can’t buy a property with no money, but everyone seems to think that you need money to buy property. That’s just crazy.
So, when you start to think creatively about the property market, you start to see things and you start to see deals that you never thought were possible that become very, very possible indeed.
It’s not all location, location, location
The most dangerous thing you can hear from anybody when they say location, location, location is that it’s the most important thing in real estate. Now, don’t get me wrong, it is very important where you buy a property but what’s more important is the cashflow that you make from a property.
You can get the best property in the world in the best location that loses money on a monthly basis and you’re buying it because you hope the price is going to go up, but we all know that’s not guaranteed. Markets go up and down so focusing solely on location is a risky choice.
Most important for me is cashflow, cashflow, cashflow. Once I know a property going to make me money on a monthly basis, then location, location, location. Of course, I want the best properties in the best locations, but they have to make me money and if you don’t focus on cashflow, cashflow, cashflow, and only focus on location, location, location, you are a riskier investor.
So, there you have it. Those are five mistakes that I see investors make. If you can learn how not to do these and instead learn about how you can be creative, learn about how to make cashflow, you’ll make better deals.