There are many mistakes you can make when investing in real estate investment. After all, real estate is always about a lot of money. And without a minimum of basic knowledge one can lose money in this area just as easily as one can earn it with a healthy basic knowledge.
Why doesn’t an investment in real estate always work?
I have once compiled which mistakes the beginners in real estate investment typically make. The nice thing is: These mistakes really don’t have to be! Most people pay the lesson in real estate only because they have not informed.
Buying according to emotional aspects and not according to figures/data/facts
Especially beginners approach the topic of shuttercraft real estate investment in the same way as they approach the purchase of their own home. They furnish the apartment mentally, miss the golden taps and complain about the missing bathtub. They forget, however, that there are tenants who have completely different needs and wishes. And what they also forget: That they want to earn money with the real estate. And that it is then important that the numbers are correct. Of course, the property itself must be in a good rental condition, but it must fit the tenant and not the landlord.
The landlord must fit primarily the numbers, data and facts and not the living experience. This also includes a reasonable return calculation. Which brings us to the next typical error.
The yield was not or wrongly computed
Many investors are tempted to buy by the rental return, which the broker praises in his exposé. However, this type of real estate return says absolutely nothing about how the invested capital of the investor actually pays interest. For this, the investor would have to calculate the return on equity of the yield object. And most do not know, how that goes and which factors belong at all into this computation (more to the net yield computation). You can find my real estate yield calculator here.
Financing is not tailor-made
Most bank advisors do not have any investment property themselves and simply lack the knowledge about the special requirements of financing a capital investment property. They offer the investor the same financing as a home buyer. And in the rarest cases this fits also to a real estate Investment. Therefore it is important to build up a basic knowledge for the financing of capital investment real estates (more to the repayment and fixed interest).
The rent is not high enough
Thus the costs of the yield object are often higher than the rental income. The beginner then assumes that he can increase the rent. But a rent increase is subject to very strict, legal requirements.
In addition, there are upper limits that should not be exceeded under any circumstances. Therefore each capital investor should provide an overview of the rents usual in the market. And if he wants to buy a rented apartment, then he should examine the rent increase possibilities before the purchase (more to the examination of the lease).
The location of the property is not optimal for (re-)letting
One hears again and again how important the situation is when investing in real estate, but many investors do not heed this factor. When it comes to location, the most important thing is that a typical tenant has everything he or she needs. And many investors start from their own needs. And they also forget that location factors can change. If a railway line is suddenly built next to the property, the price drops faster than one can believe. And then finding a tenant who pays a high rent is almost impossible.
The real estate market in the region in question is in a downward trend
There are often investors who live and have grown up in a region where they feel comfortable. They don’t even get the idea of investigating the trend in this region. Are they more likely to move in or out? Especially in rural areas, investing in real estate is often tricky. Those who like to live with body and soul in a small village far away from civilization should unfortunately not assume that the target group for potential tenants for this area is high.