If you take your time, do your research and invest with a long-term horizon in mind there is no reason why you should not create a long-term lucrative property portfolio. That said, there are many simple mistakes to avoid when setting off on your journey into the real estate market. The reality is that you will make mistakes in your property career but if you can avoid the simple ones then you give yourself a much better chance of succeeding in the longer term.
When you buy your first property and the value goes up, you see the rental income coming in and you see other “bargains” it can be difficult to control your enthusiasm. We have seen many buy to let investors overstretching themselves at a very early stage and when the markets turn, capital values stagnate and tenants are struggling to pay, this can and has seen many buy to let portfolios come crashing back down to earth. Keep an eye on cash flow, do not mortgage yourself to the hilt and always have a long-term goal in mind.
Heart ruling your head
Remember, if you are investing in property you are investing to make a profit not investing in a place to live in the longer term. This is why you should never let your heart rule your head when looking to buy property, look at the cold hard facts, the area and the cash flow. It may be the best house in the region, it may have caught your attention and there may well be long-term potential but you’re not dealing in emotions here, you are dealing in expensive assets from which you need to make a profit.
As we touched on above, it is crazy to overstretch yourself at any point in your property investment career. You may have a whole string of successful properties but one bad investment could bring the whole lot crashing down unless you have “headroom”. By headroom we mean a financial safety net in the event that one of your investments does not perform. This headroom should give you significant breathing space between actual cash flow and required cash flow to give yourself time to get your property portfolio back on target. Living and investing on the margins 24/7 will not only impact you mentally, and tire you out, but it means that you are just one bad investment (or one unlucky break) from going bump.
Keep it business like
When you are dealing with friends, family or acquaintances in the world of investment, you need to keep it business like all of the time. This is why many successful investors refuse to work with family and friends because some people don’t know where to draw the line. If you are dealing with other career investors then the likelihood is they will have the same mindset as you – focused on business as opposed to making friends. At the end of the day you are potentially investing large amounts of money and you need to make it work for yourself. Again, do not let your heart rule your head.