Property investment is one of the great forms of private investment, and can be one of the most lucrative. It can also be one of the most dangerous. There are plenty of traps and pitfalls. This not a simple investment market and it’s quite possible to get lumbered with some serious problems. Mistakes can lead to bankruptcy, a destroyed credit rating and a host of truly horrific experiences.
The big “Don’ts” of DIY property investment, basics
The “Don’ts in this area are very straightforward, but they have to be understood clearly:
1. Don’t trust the market- The most basic “Don’t” of the lot. Property investing can be very like gambling of the worst kind. The market is going up, isn’t that great? Not necessarily- Higher prices are an entry into an untested credit market, both in private property and commercial investment. A few sales don’t make a market. Quality of properties must be taken into consideration. Some properties are worth high prices. Others definitely aren’t. The market classifies “similar properties”, but that’s a very broad brush, a bit too broad for specific transactions.
2. Don’t trust market valuations- These things are produced like confetti. Unless you’ve got a real valuation by a real valuer commissioned by yourself, take these valuations with a ton of salt.
3. Don’t trust locations- Location may be everything, but in any local area there are going to be some real turkeys of properties that include big costs. They’re sold because they’re liabilities. They’re bargains for the seller, not the buyer. Buying investment property requires more than blind faith in a location.
4. Don’t move without legal and investment advice- Even professional investors can get caught out if they don’t do the “due diligence” routine in terms of appraisal of legal issues and professional investment assessment. These processes aren’t some sort of ritual dance of the paperwork, they’re risk management procedures. They’re also the best possible methods of avoiding bad investment decisions.
5. Don’t base your financial commitments on the blue sky view of an investment- The realities of investment properties can be brutal reality checks. It’d be nice to think that an investment will produce X profit over Y time frame, but don’t believe it, or make commitments on that basis. The reality of the market is the price you get, not the price you want to get, and the differences between the two can be nasty surprises. If anything, be extremely conservative in any estimate of upside returns.
Play safe, and you’ll stay solvent
The fact of property investing is that you can take risks unlike almost any other sort of business. If you buy a business, you buy the issues of that business at a set price. It’s comparatively easy, because you can control your purchase through good accounting procedures. If you buy an investment property, you’re buying the statutory, legal, and financial commitments and liabilities involved. You can be buying a handyman’s nightmare or a great income stream for your lawyers.
Play safe. Get professional advice about your investment options, take the opportunities to train in property investment, and above all, with any investment get your facts straight. There’s always a better property deal somewhere. Make sure you get it.
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