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Property Investment Mistakes

Property Investment Mistakes
November 20, 2019 Hugo Fairey

Failures or errors in property investing can be so costly that some people never reinvest,  and therefore never capitalise on the experience that they have gained. Otto von Bismarck’s advice was, “Fools say that they learn by experience. I prefer to profit by others experience.” As such, we have compiled a list of common property investment mistakes for your consideration:

#1 Not understanding the investment

Read the Terms and Conditions of the investment. Be fully aware of any fees, both on investment and during the investment term

#2 Not understanding the sector

Be sure to understand the sector in which the property is based. The differences between commercial and residential property can be considerable, and these differences can be key.

#3 Falling in love with the development or development company

Don’t let emotion cloud your judgement when investing. Try to follow your head, not your heart.

#4 Lack of patience

Don’t make rushed investment decisions! Take the necessary time to study the details and evaluate the risks.

#5 Forgetting to invest in your financial education

Try to follow the philosophy: learn before you earn. There are many ways to learn about investment strategies – for example, consult the internet, books, or experts in the sector.

#6 Attempting market timing

Relying on markets moving in your favour as part of a wider economic trend is not a strong basis to invest. Look for investments which aim to add value as part of their model instead of merely relying on capital growth through expected price increases.

#7 Failing to diversify

Companies like Brickowner now allow you to invest smaller amounts into property across many sectors and areas. This can help to reduce risk.

#8 Confusing historical returns with future expectations

The ‘Hot Hand Fallacy‘ is the notion that after a string of successes, an individual or entity is more likely to have continued success (the term is derived from basketball, where a player scoring lots of points is assumed to have a “hot hand”, and will, therefore, continue to score points). As the name suggests, this notion is a fallacy – winning streaks rarely continue forever.

#9 Investing without a plan

Always ask: does the investment suit my personal goals and life plan? Have an overall investment strategy, and fit individual investments into that.

#10 Using money you cannot afford to risk

Never invest amounts of money that you do not feel comfortable losing. This is linked to #9 – make sure your investment plan does not place at risk too much of your savings.

#11 Following the crowd

Most investors don’t even realise they’re doing this, but many times they will believe that “such and such” is a good idea because “so and so” is doing it, and therefore it’s a good investment. This mistake often lies at the heart of market bubbles. If investing were that simple, we would all be wealthy.

#12 Believing in “get rich quick” opportunities

If it is too good to be true, it probably is!