Global investors face a time of much uncertainty. The president of the United States is a man that is capable of anything. It’s ‘America First’ and what that means for investors across the world is still unclear.
With so much uncertainty, fund managers are encouraging their clients to turn to real estate again. As one of the few safe havens remaining, real estate particularly in the emerging markets is back on the radar. Countries like Bangladesh, the Philippines, and Pakistan are again enticing propositions according to analysts. But there remains many pitfalls for budding property tycoons: five of which every investor should be aware of.
Real estate is not a get rich quick scheme
The idea that by investing in real estate you can become an overnight property tycoon is a fallacy fuelled by so-called ‘gurus’ on infomercials and radio stations. They write books like How to Make a Million before you’re 30. By following their step-by-step guides, they promise that you will be rich in a short amount of time. The reality is something entirely different. Unless you are one of the lucky few, real estate takes time, patience, and a lot of hard work.
Me, myself, and I
In real estate, you are reliant on other professionals for support. Without at least a suitable real estate agent, an appraiser, a home inspector, and a closing attorney, you will be up against a wall. When it comes to the value-adding remodeling phase of the business, you are reliant on having top plumbers, electricians, and general handy-men to put the place together. If you are trying to do all of this yourself, it will take you a very long time to complete even a small project.
Dodging due diligence
Moving quickly on a transaction can be the difference between making a ten percent margin or just breaking even. “The pitfall that a lot of investors fall into is signing off without extensive research,” said Nicolas Le Borgne—head of business development and business intelligence at a leading property portal. “You see it happening all the time with young investors rushing head first into big deals. Next thing they realize that the house has structural problems, and they are faced with expensive remodeling bills.”
Cash flow blunders
Running out of cash is the end of the road. As an investor with no cash reserves, you face bankruptcy and not many business people can ever recover from that. If you plan to buy, hold and rent properties you need to stockpile enough cash to cover maintenance costs. It takes on average 90 to 120 days before a property is leased out and the owner has to cover the mortgage, the taxes, the advertising, and homeowner fees; a huge expense that requires deep pockets.
There’s an adage in property circles that once you’ve done all your homework, double the amount of time then double the amount of money you first estimated. If you can still reach that target and see a profit in sight, then it’s a good deal.