Skip to main content

Common Mistakes Of New Real Estate Investors


Many people are convinced about the soundness of real estate investment as a wealth-building vehicle but most are not clear as to the path to follow and the pitfalls to avoid. More recently, I have had reason to clarify to aspiring real estate investors that real estate investment is not a get-rich-quick system. It is a system that requires knowledge, dedication and focus. We shall examine a few mistakes to avoid if you desire to effectively utilise this wealth building vehicle.

One of the basic errors new real estate investors make is to buy properties blindly on the assumption that all real estate investments automatically go up. This common assumption is not true in its entirety. For instance, if you decide to buy a property in an odd part of town without considering basic infrastructures or basic advantages, and then you go ahead and develop the property, you may experience a high vacancy ratio (this means, it takes an unduly long time to rent the property to tenants) or it may not be easily sold when you put it in the market. Properties do appreciate but not at the same rate and sometimes there are downturns in the market. During periods of downturns properties that have certain locational or structural disadvantages lose value the most.

Furthermore, when starting out in real estate investment, focus on cash flow instead of net worth. What you should measure is not just the value of the property you are buying but the amount of money it puts in your pocket monthly or annually. The big house you live in is not the true symbol of wealth but how much income generating assets you control. True investors plan their life in such a way that even when they are literally not working their assets are generating income that could take care of their standard of living. I recollect an astute real estate investor who built about ten detached houses in an area whose rental income was not less than N1m per annum. He explained to me that his intention was to use the properties as his retirement vehicle. In his calculation, the properties would generate over N12m per annum which translates into a N1m income monthly, which more than takes care of his basic standard of living. Take a cue from this. Calculate what the investment puts or is capable of putting into your pocket regularly.

On the other hand, as a starter, you need to avoid buying upscale or luxurious properties. In life, you need to crawl before you walk and walk before you run. Life is in stages. You should start your real estate investment by buying or building rental properties in low to middle class areas. The properties that are for these classes normally rent faster. And generally, if you build or buy in an average area you will easily rent it out. However, upscale neighbourhoods and luxurious apartments usually stay longer in the market and are often the hardest hit in downturns. They normally attract unstable renters and when times are tough most people who desire to scale down their standard of living will move out from such areas. A visit to many high brow areas in Nigeria at this time, will confirm this assertion. You’ll definitely see a lot of buildings with to let or lease signs. If you are an experienced investor with other income-generating assets you will not feel it if your upscale property could not be rented for twelve months. But if that is your only property, you may not find the situation tolerable.

In this connection, may I also warn that you should not buy a property for the sole reason that it is cheap. It may be cheap on purchase price but expensive and costly when viewed from another angle. This reminds me of an individual who actually had the resources to buy a land in good neighbourhoods but had the mentality of buying cheap land and erecting big structures on it irrespective of the neighbourhood. He is widely travelled and when he wanted to build his residential house he bought cheap land in a high risk neighbourhood and built a mansion on it. The last time I heard of him, he had to pack out of his property after a few visits from armed gangs in the neighbourhood. He rented a bungalow in a more secure neighbourhood.

Finally, don’t try to do everything yourself. Surround yourself with professionals who are knowledgeable in this area and be mentored by more experienced real estate investors.

- ABIODUN DOHERTY

Comments

Post a Comment

Popular posts from this blog

Ogun plans low cost housing scheme

The Ogun State Housing Corporation has said that it is planning to deliver low and middle income housing estates across the state. In a statement, the corporation said its flagship scheme, Plainfields Estate, was already being developed as a community housing prototype that would provide the citizens an opportunity to buy into its plan over the next few years. According to the statement, the estate will, upon completion, have a variety of apartment units. The statement read in part, “The corporation will deliver houses and serviced plots across the three senatorial districts, but will avoid a blanket approach. “This means that these projects will be tailor-made to suit the needs of the locality and the market. Everyone who has recognisable means of livelihood in the formal and informal sectors is qualified to buy. “However, the corporation is keen to help those who need mortgages and who are first time buyers.  Because our objective is to encourage home ownershi
Post a Comment
Read more

Informal sector leads job creation in Nigeria

According to the International Labour Organisation (ILO), Africa’s working-age population is estimated to have reached over 490 million in 2012, representing a quantum leap of 259% since 2000 at an annual compound growth rate of 2.8%. Therefore, employment of the continent’s teeming labour population is key to economic development within the region and indeed, globally. Sub-Saharan Africa’s absorption of its working-age population in employment compares favourably to other regions as contained in the ILO’s 2013 global employment trends report.Subsequently, total estimated number of jobs created in the Nigerian economy for the first quarter of 2013improved by 12% over the previous quarter. This development, in line with the latest job creation report released by the National Bureau of Statistics (NBS), indicate that 174, 326 new jobs were added to the nation’s economy.  Overall, conducting quarterly labour force surveys is a positive trend for Nigeria considering the
Post a Comment
Read more

How to Make Yourself Work When You Just Don’t Want To

There’s that project you’ve left on the backburner – the one with the deadline that’s growing uncomfortably near.  And there’s the client whose phone call you really should return – the one that does nothing but complain and eat up your valuable time.  Wait, weren’t you going to try to go to the gym more often this year? Can you imagine how much less guilt, stress, and frustration you would feel if you could somehow just make yourself do the things you don’t want to do when you are actually supposed to do them?  Not to mention how much happier and more effective you would be? The good news (and its very good news) is that you can get better about not putting things off, if you use the right strategy.  Figuring out which strategy to use depends on why you are procrastinating in the first place:  
Post a Comment
Read more