Juliet Risdon
Juliet Risdon is a Director of JML Property and a property investor.
Having established the company in 1994, JML Property offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.
In the final installment of the top 20 causes of property investment failure, we look at the top 5 reasons. Before we do, here is the list so far;
20. Lack of planning
19. Not using a property company that specializes in investment property.
18. Not having enough financial reserves for the property
17. Ignoring the ‘associated’ costs
16. Listening to unqualified advice
15. Relying on your emotions
14. Buying an old property vs. a new property
13. Being your own property expert
12. Not taking out adequate insurance
11. Owning an empty apartment
10. Creating negative cashflow
9. Hiring the wrong rental agent
8. Gambling with the investment
7. The wrong financial structure
6. Mistreating a tenant
And finally………. the top 5:
5. Failing to run tenant background checks
A bad tenant will make your life a nightmare.
There are tenants who could not care less about the legally binding contract they have signed. They pay their rent late, they fail to look after the property and report issues, and they leave the property overnight taking with them a good deal of the furnishings.
They hold late night parties and upset the neighbors, building managers and local neighborhood. They break items in the property, and generally put the value of your investment at risk.
Running background checks on tenants is imperative. You can nearly always avoid a bad tenant with a few careful checks, but spotting the less obvious offenders is more a matter of experience.
4. Buying in the wrong area
As the old adage goes, ‘location, location, location are the 3 most important factors when it comes to real estate’.
Buying in a good, or ‘up and coming’ area is an advantage. These areas are deceptively difficult to spot. The promise of a ‘new rail link’ or ‘groundbreaking park’ may not materialize, or often takes years longer than expected.
But buying in the ‘wrong’ area can be a killer.
These are areas where prices may appear cheap, but the neighborhood is dangerous, dirty, overcrowded, difficult for transportation, neglected or simply unpopular.
When a low price is the only attraction of a property, bear in mind that you are likely to have to compete with a similar low price when it comes to selling it, and if you are trying to rent it out you will have great difficulty.
3. Buying a high-priced property
When the economy is doing well, expensive high-end properties are fine.
But when there is a downturn in the economy, owners face a property that has negative equity (it is worth less than the amount of money owed on it), or an investment apartment that does not have a buyer and where the rent must be reduced dramatically to get a tenant.
The current Macau market is picking up for low and mid end properties. But higher priced properties are still being sold at a discount.
You do not have to look at high-end property to maximize your returns. Quite the opposite in fact. Buyers are usually far better off investing in an attractive average property that has great rental appeal.
2. Managing your property and tenants yourself
Many people believe the biggest mistake made by investors, especially first time investors, is trying to manage the property themselves.
As pointed out in No 5, a bad tenant is not only difficult to deal with, it can be a life changing experience and one that most experienced investors prefer to distance themselves from. Tenants can leave the property empty, dirty and destroyed. They can disappear overnight.
Handling contractors and making arrangements for lock outs, emergencies, floods etc is best handled by a property management company.
Collecting rent can be a very uncomfortable experience for some people, especially when the rent is late. Management companies don’t have the luxury of being able to grant rental extensions, and tenants tend to take fewer liberties when they dealing with a company rather than an individual owner.
This is the downside of owning investment property, and it makes more sense to get someone else to handle it so that you can concentrate your time and efforts on the most important aspects…..finding your next investment property deal that will make you some money.
1. Procrastinating
Time and time again we meet first-time property buyers worried about whether the time is right to get into the market.
The procrastination prevents them from ever making the move.
Successful property buyers usually take one of two approaches. They either try to buy at a price lower than the marker value, and then upgrade / sell the property, or they ‘buy and hold’.
Over time, the buy and hold approach is more productive and provides an ongoing cashflow. In this strategy you use the gains made on the value of the first property to buy the second, and the gains on the second property to buy the third and so on.
After some time there is enough equity to either sell some of the properties to pay down your debt or the income starts being greater than the mortgage – funding the kids schooling or your retirement.
The key to this strategy is simple. The property should be located in an area that is easy to rent and be at a reasonable price in the current market. Don’t worry too much about whether the ‘market is at the bottom or not’ – your investment will grow over time.l
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