Real Estate Matters | The biggest property investment mistakes Mistakes to avoid if you buy property – Part 3

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.

We are looking at the most common reasons for property investment failure.

12. Not taking out adequate insurance
This is a simple one.
In parts of the world where building quality is poor, insurance is essential. You can have your profits wiped out through having to pay for fire damage due to poor wiring, a burst pipe that was unattended, or some other similar incident.
This is especially important in apartment blocks where the cause of the damage may not have been your own doing, but that of a neighbor. Ideally you would insure not just the cost of re-building the apartment, but the cost of repairing any internal damages as well.
The bank with which you have your mortgage loan can help to provide you with more details on insurance.

11. Owning an empty apartment
Empty apartments cost money, and if you are investing in property it’s money that is lost rather invested. When a property is empty, it deteriorates very quickly.
In summer time mould appears quickly, and insects and bugs find their way in the home. Heavy rain and flash floods can create problems that require time and money to fix.
In winter, shrinkage of materials can create open gaps in doors and windows, and unattended issues such as bursts pipes and electrical failures can cause lasting damage if they are not handled in a timely fashion.
If a property is for rent, every day it remains empty is lost revenue that cannot be recovered.
An empty property is a cost to be minimized. If it must sit empty for some time, make sure there is a professional management company looking after it to avoid these issues.

10. Creating negative cashflow
Property can be both an asset and a liability. In very simple terms, if the property puts money in your pocket, it’s an asset. If it takes money out, it’s a liability.
As a property investor, negative cashflow means that you have to pay out a sum of money every month on top of the rent collected in order to repay the bank loan.
If you are buying investment property, it makes sense that once you have paid the deposit, the rental income should pay for the bank loan, and have enough money left over to cover other related costs such as the management fees.
By avoiding negative cashflow, you are providing yourself with a ‘buffer’ in case circumstances change, and you will build up a growing amount of funds that can be used for further investment.

9. Hiring the wrong rental agent
Agencies tend to specialize. Figuring out which one best suits’ your needs is important.
Some agencies, usually the single agent and the smaller agencies, focus on low-end rentals. Others are more concerned purely with sales, and do very little rental placement.
Choosing the wrong agent for the job can cost you a lot of wasted time and lost revenue. Before placing your property with an agency, its always a good idea to ask them about the number of similar transactions they are currently handling. This will give you an idea of how busy they are, and what experience they have with your type of property.

Next week: More common investment mistakes

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