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Five Common Mistakes People Make While Investing In Real Estate

Gains or losses obtained in any type of investment, does not always depend on luck, although some people become very rich or speculating on the rise or fall of the prices of certain financial assets such as shares or bonds or properties.

But unless you have enough experience and money to risk, you will most likely to succeed in the end if you participate actively in the investment process rather than letting your random decisions.

Remember that any investment involves risk, but if you stop to think for a moment about what your goals and develop your own investment plan, you can minimize the risk of loss while increasing the chance of profit.

However, it is also important to be aware of the most common mistakes committed by the investors.

Investing in real estate

The most common mistakes, which investors make while investing in real estate, are the following:

Being Unprepared

This means that if you do not have your finances in order or not have enough savings, emergency funds, and debt levels, then investing in real estate is a bad idea.

If you start investing, do not risk your emergency funds, as these must have high liquidity. It is true that the shares can be sold immediately, but keep in mind that you should to sell them at a loss or in case of any emergency.

Not having goals

If you do not have goals, you do not have a specific direction to measure results. Besides, this is the starting point to outline a plan and investment strategy. Goals can be short, medium, and long term.

  • The short-term goals have a time horizon of one to three years, and an example can be to have enough resources for a holiday.
  • The medium-term goals have a time horizon of three to five years, and an example is to have enough resources for a down payment on a house or a business.
  • While long-term goals have a time horizon beyond five years, and a good example is to have enough resources for a comfortable retirement or to finance the education of your children.

Not having any plan or strategy

According to the experts, you must establish a plan or investment strategy. For your short-term goals, you might want to make more conservative investments of high liquidity and less risk. While for your long-term goals, make some big investments with high-profit potential.

Not having a diversified portfolio

It is well known the old adage of not putting all your eggs in one basket, and that means diversifying your risk. History speaks of companies that have filed for bankruptcy hurting thousands of shareholders, as in the Enron Scandal in America in 2001, and more recently Eastman Kodak case.

It is therefore very important to have a portfolio that reflects the type of companies, industries, and financial instruments to minimize the risk of losses.

Overindulging Euphoria

In the financial market, there is a saying attributed to Joseph P. Kennedy, father of John F. Kennedy: ” “When even shoeshine boys are giving you stock tips, it’s time to sell”.

The story goes that when one morning in 1929, Joseph Kennedy began receiving investment advice from a young who shined his shoes, and that day he knew that he had to get out of the stock market, and subsequently sold all its shares, and so reaped earnings before the market collapse that year.

The financial bubbles are caused by public euphoria moments as happened in the late nineties with technology stocks, and more recently with real estate. So it is important not to fall into euphoria, and patiently analyze the basics before making the investment.

Filed in: Investing Saving, Real Estate

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