Posted on August 24th, 2008 by James L. Hardcastle
by James L. Hardcastle
There are eight simple rules to wise property investing. We call them the eight must nots. If you arm yourselves with them and put a lot of elbow grease into your well thought out plan, you can become a wise investor. The eight rules are simple, do not rely on seminars for information, cut yourself short, assume anything, ignore the numbers, become attached, do it alone, forget practicality, or limit yourself. Let’s take a closer look at these eight rules.
Rule Number One: Do Not Rely on Seminars for Wise Investments
If you really want to go to a seminar, by all means do so; but don’t get caught up in the hype. You can learn a lot of general market information from seminars, but don’t count on the speakers to give you useful, specific information. You can learn strategies and how to prepare for unforeseen circumstances, but remember that the speaker is just expressing their opinion; and you have your own.
When thinking about a seminar, ask yourself what you stand to gain by attending. Then, think about what the speaker has to gain. Why exactly are they promoting the idea that they are? Do a little research and find out if there’s a lot of money to be made or if you would do better with a different endeavor. Make sure to know the facts before you invest a dime in anything. This will help you to prepare a plan which you can use to invest safely.
Rule Number Two: Do Not Cut Yourself Short
Think about all of the potential costs of an investment and decide whether or not you can realistically pull it off. There are always unforeseen costs which will come up, leave yourself some wiggle room for these. Compare the costs of different properties to evaluate whether or not it will be worthwhile for you to buy. You have to be ready to pay for inspections, broker’s fees, taxes, utilities, depreciation and all sorts of other expenses that may come up while you own this property. Don’t rely on rents to pay for these costs; you should be sure that you can cover all of these expenses without receiving any rent from the property.
Rule Number Three: Do Not Assume Anything
Never ever assume anything. Rather than guess, find out the facts. As an investor, you need to know everything in order to make a wise decision about whether or not to invest in a given property. This is not a game of overnight wealth. While you can indeed get rich with property investment, it does take time, dedication and a lot of hard work on your part. You have to know all of the facts at every step in the process. Asking price, calculated return and how much money you’ll have to spend on the property before you can resell it for a profit. You need to know how much rent you’ll receive and how the tenants are before you proceed.
Rule Number Four: Do Not Ignore the Numbers
Watch your numbers. Do not borrow more than you can afford. Remember, this property needs to make you money, it’s not where you will be living. Think of it as an employee. So the more debt you have the more interest you pay. So you must be able to afford to pay the mortgage regardless if you receive rent or not. Watching your overall cash-flow is definitely important. Remember to be prepared for the unknowns.
Rule Number Five: Do Not Become Attached
Remember, this isn’t your home – so don’t get emotionally invested in the property. Think of this property the way that a prospective renter or buyer might. Think of the property as you would anything else you want to sell – you want to get it into someone else’s hands as soon as you possibly can. Think about how much you’ll pay for the property and how much of a profit you can make by reselling or renting it.
Rule Number Six: Do Not Do It Alone
Trying to go it alone, at least at first can be a huge mistake. Remember that you are not yet an expert in everything, nor do you need to be. Learn from the experts. While going it alone may seem like a good way to keep your costs down, it can lose you money in the long run. Do things the right way – you are going to need a property lawyer, a mortgage broker, a property assessor, an inspector and most certainly an accountant. Having a trusted contractor in your corner will also make things easier. Be frugal, but not miserly; cutting corners now will only cost you later.
Rule Number Seven: Do Not Forget Practicality
Keep the practical elements of investment property firmly in mind. A home is a good investment if located near amenities like shops, public transportation, schools and so on. Also, think about quality of life; what is the neighbourhood like? Are the schools good? Is the area generally safe? If the area is disaster prone, you’ll need to know that as well. Think of the age of the home too – is the plumbing and wiring modern or will it need to be updated? Is the home sufficiently insulated? Buyers, renters and insurers will all want to know this.
Rule Number Eight: Do Not Limit Yourself
Each time you buy a property, it gets easier. You’ll learn from each investment and will grow as an investor. You’ll begin to grasp how to take advantage of the market trends. Don’t limit yourself to just one investment.
Why Seek Help?
Having a good mortgage broker behind you can make all the difference. If you are turned down for financing by banks, look for a creative financing expert; they may be able to find other financing routes for you. Investing in property takes dedication and hard work, along with the willingness to lean from others. With the right financier behind you and all of your research in place, you can make smart and profitable investments.
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