We are no strangers to the fact that investing in real estate is no gamble. It is only after extensive market research on the real estate sector is when we can enter the world of real estate investment. Whether you are buying a property for the first time, or have been a part of the buying process for a while now, the process never stops getting tiresome as well as exciting at the same time.
Even when you as experienced and have taken years to understand and gain information about investing in real estate, you are bound to make mistakes. However, it is even harder for young adults who have just started on their journey and are not too aware of the practical world, and are yet to learn their lessons.
First things first, investing in real estate at a young age is a good idea and a wise choice. You will be surprised to know the various benefits of investing from a young age can bring to you in the future.
If you have made your decision to start investing young, your best asset is to learn from the mistakes of those who have been in the industry for a long time now and have also succeeded in making a name for themselves in the real estate market. Even though you do not have enough experience yet, you do have the opportunity to understand what other players did wrong, and how you can make it right when it is your chance.
For your convenience, we have collated a list of common mistakes that every young buyer has made at one point or another in their property investing journey. These mistakes have been discussed in detail and to make it easier for you, we have also talked about how you can consciously avoid committing them.
Common Mistakes Committed by those Who Invest Young in Real Estate
1. Accumulating a Bad Credit Score
A credit score is one of the primary factors that is used to determine whether you are eligible enough as a buyer to take loans or invest in property. It is a number between 300-850 and takes into account several factors like your credit history, debts taken, repayment history, the total number of open accounts, and much more. The higher the credit score, the more likely you are to be a potential borrower in the eyes of lenders.
As a youngster, you might often end up spending more money than required. Whether it is to just have a good time or to keep up with your peers, you might notice yourself buying things that are not necessary. If you have a sporadic spending history or a lot of credit loans, all of this will result in a poor credit score. Both at the present and in the future, this will make it difficult for you to get approvals for home loans from banks. The solution to this is to stay conscious of where you are spending your money and how you are handling your accounts.
2. Not Starting Soon Enough
A common myth among people today is that to be successful in real estate, you need to be old and experienced. While experience is an important factor, the only way you will gain experience is by starting at the earliest. What people do not understand is that starting early in this industry is the best decision that you can make. By doing this, you are creating a foundation for your future, one that is guaranteed to be financially stable if you start at the earliest.
It is never too soon to start investing in real estate. Starting early would mean early tax benefits, quick equity building, advantages of compound interest, a higher rate of returns, and ample knowledge gathering about the sector.
3. Focusing on Short Term rather than Long Term
Do you think investing in real estate is a quick scheme to earn some money? If you do, then you have got it all wrong. There is much more to real estate than just profits and generating cash for your short-term needs. If your only purpose of investing is to buy a property today and get rich tomorrow, then now is not the right time for you to start the process.
Start your journey with long terms goals and objectives in mind. Give yourself a reality check and know that it may take several months before you find the right property that you would want to invest in. Even after that, it may take years for you to sell your property and generate cash flow. Real estate investment is something that requires you to be patient, consistent and committed to what your goals are. For this, you need goals that are long-term and will reap your benefits for years in the future.
4. Living with Parents for Too Long
We know that the lifestyle you have with your parents is one of comfort and luxury. However, sometimes the best solution is to get out of your comfort zone and learn to become independent. It is only when you get out of the nest and are on your own that you understand how the real world works. Try to start investing in property when you are out of your parent's home, have found a secure job, and are mature enough to pay your bills and save up for the future.
5. Lack of Research
Sometimes you are in such a hurry to just get done with market research and move on to looking at properties, you end up neglecting the importance of research. Whether it is real estate or any other industry, lack of research is bound to result in costly mistakes along the way. It is a good thing to be confident, but overconfidence in your knowledge and expertise can lead you to lose money. To begin with, here are a few areas that you can start your research on-
- Demographic Factors
- Economic Growth
- Real Estate Trends
- Condition of the Prospective Property
- Property Costs
- Financial Requirements
6. Assuming there is No Need for an Agent
It is true that real estate agents often ask for a fee that you may feel is too much and so there is no need to hire one. However, spending money on the right real estate provider will take you a long way in the real estate industry. Especially when you are a first-time investor, you do need someone professional and qualified enough to guide you at every step of the way. Whether it is a problem you are facing during the final transaction of property buying, or you want to get a better deal by negotiating - real estate agents can make all your work easier and faster. In the end, spending money on an agent is entirely worth it.
7. Getting too Emotionally Involved in the Process
This is one of the most common mistakes observed in youngsters who are just starting. Very often, you let your emotions get the better of you instead of applying what you have learned and researched about the market. An example of this is how you might end up investing in a property because of its popularity or posh location, without even considering its price or future growth potential. The right way to go about this is to consult a real estate provider before you take any major decisions.
8. Neglecting the Investment Portfolio
Your work is incomplete till the time you do not monitor, analyze and document all your real estate investments. Thinking that your responsibility is to only invest in a property or sell it for profits is not the right way to go about it. If you do not have an investment portfolio then you will soon lose track of your assets and all the little details and decisions you made throughout the process. The most important thing to include in this portfolio is the metrics of how you are progressing. Some of these records can include -
- Gross Operating Income
- Loan to Value Ratio
- Capitalization Rates
- Rate of Returns
- Gross Rent Multipliers
If these terms are too hard for you to comprehend or get a hang of, you can also take a look at common terms used by buyers and sellers for a better understanding of the technical language used in the real estate world.
If we are being 100% honest with you, investing and buying property is indeed a time-consuming and emotionally draining process. Especially when you are just starting, the technicalities and the bulk of information can often get to you. However, since you are young and are entering the real estate industry with a fresh perspective, you also have the biggest asset on your side - time. Understand that even if you end up committing mistakes or having setbacks, you always have sufficient to recover from them and restart.
If you have come across this blog, consider yourself lucky! The reason for this is that you have now become familiar with the mistakes that you are likely to commit. You will be surprised to know that people in the real estate sector only learn about these mistakes when they end up committing them on their own. This happens due to a lack of knowledge or simply because no one has ever been there to guide them in the correct direction.
You, on the other hand, have been informed at the initial stage of your real estate career about what can go wrong and how you can correct it. Now all that there is left for you to do is make the most of this opportunity and take this as a sign to head start your journey of property investment!