What Are the Common Mistakes Made by Real Estate Investors?

Real estate market is constantly buzzing with newer and better investment demands. Money markets suffer and economies fall but real estate dealers try to profit even out of a sleeping market. Compared to other commodity markets, preperty is a highly promising venture. Controlled risk and sustained growth in market value makes real estate a perfect business to trade in. Hence, real estate business easily attracts the over-cautious species of investors. Conversely, the limited-risk nature also encourages investors to overlook the financial consequences of their transactions. No wonder, people enter and leave the business within a matter of months. When they find that their profits are barely capable of fairing their investment expenditure, they blame the market. Had they invested the same sum in forex or capital market, they wouldn’t have done the same. Strategic planning and market study are the basic elements that predict the future of any market in this world. And real estate is no exception to this rule. Outlined below are some of the common mistakes practiced by inexperienced and over-confident real estate investors.

1. Lack of a systematic plan. Newcomers in real estate market take a flexible stand. They know where to start but they have no clue where to end up or how to wind up a transaction. They know that unlike equity markets, prices are not going to topple overnight. So they invest and wait for the prices to move high. And when they find that the prices are moving in an unfavorable direction, they put the property on sale in order to avoid further losses. In the wake of a temporary fall in demand, investors desperately try to recover their capital invested. Selling a property in a low-demand market scenario can turn out into an investment disaster. This happens when the investors don’t have a long-term plan. Lack of market knowledge and experience further fuels their incapacity to predict positive and negative market movements. On the whole, investors end up limiting their own options by taking irrational and accidental investment decisions.

2. Investing in new markets. During the last economic downtrend, many real estate dealers invested in fresh property markets. Eventually, their prices soared leading to high returns. Moreover, they benefited from tax savings too. The phenomenon attracted new investors who followed the suit. However, the results didn’t replicate as expected. Property market movements are dependent on social psychology and this makes it pretty dynamic. And to thrive in a dynamic market, investors need to be equally dynamic in their thoughts as well as actions. New places need not necessary attract property demand on a consistent basis. The demand curve depends on several financial and non-financial environmental factors. However, over-cautious and ravenous investors blindly follow the tried and tested ideas only to discover their futility at a later stage.

3. Lending the property on lease. Lease contracts are easily executable and they might bring temporary returns too. However, in majority of the transactions long-term benefits of lease are reaped by the buyer and the seller ends up collecting an outdated sale value as compensation.