UGANDA, Kampala | Real Muloodi News | Investing in real estate can be very lucrative, and has traditionally been considered the best method to build wealth. However, expertise in property investment is built out of years of experience and not handed out in the blink of an eye, as some prospective investors may imagine. The wrong move can drive one into huge losses if not well managed.
Therefore, Real Muloodi News has gathered some common mistakes that property investors should avoid:
1. Short Term Investments
Typically, you should look at real estate investment as a long-term investment strategy. This means that your investment money is likely to be tied up for a long time.
The exception to this is to fix and flip real estate, which is buying a house below market price, renovating it, and then selling it in the short-term for a profit. However, with most traditional real estate investments, you need to exercise a little patience and allow the property’s value to appreciate.
The challenge is expecting to achieve big things in a short time – this is likely not going to pay off.
2. Buying the Wrong Property
It is common practice for rookie property investors to buy properties that become money-pits because they fail to inspect the property properly. The house may have structural damages that are not easily detectable to a novice, or foundation or plumbing issues, or other big-ticket items that will financially drain you to repair. Always get a professional inspection before you buy.
3. Lacking a Plan
According to Irish author Stephen Keague, “Proper planning and preparation prevents poor performance.”
Before putting down your cash or getting tied up with a mortgage, first, decide on your investment strategy. What type of house are you looking for, for example; one-family or multi-family, vacation destination or not? Figure out your purchase plan, then look for properties that fit that plan.
All too often, people first purchase property and then decide what to do with it, and only in hindsight realise that particular property may not have been the best investment decision given the direction they want to go.
4. No Research
It is vital to do due diligence on any property you intend to buy. To begin with, you should be aware of the tenure system. In Uganda, there are four types of land tenure systems; customary, mailo, freehold and leasehold. If it is a leasehold, for example, how many years are left on the lease?
Check that there are no incumbencies on the title. Research the neighbourhood and have the property inspected because, without due diligence, your financial stability and capital growth may be on the line.
5. Using Your Heart and Not the Head when Buying or Selling
It’s easy to get emotionally attached to an investment. While gut feeling and instinct play an important role in real estate investing, so does data.
There is so much information that can be analysed: market data, property data, cash flow, rental projections, etc. This is data that can accurately predict trends for you. Use data to stay grounded. It can help you ensure that you are making a good investment.
Emotional decisions often lead to less value for your property investment.
6. Doing Everything on Your Own
You may have completed a number of deals in the past that went well, so you may think that you know it all and can close a real estate transaction on your own. However, the process may not go as smoothly this time, and if you are going alone you won’t have anyone to turn to for help to fix an unfavourable real estate deal.
Real estate investors should tap every possible resource and befriend experts who can help them make the right purchase. A list of potential experts should, at a minimum, include a savvy real estate agent, a competent home inspector, a handyman, a good lawyer, and a registered surveyor.
7. Miscalculating Expenses
People often think that the cost of buying a property is limited to the down payment and mortgage instalments. However, there are many more additional costs that you need to prepare for, including legal fees, title fees, property rates, rental income taxes, service charges, stamp duties and insurances.
The best advice is to make a list of all of the closing costs and monthly costs associated with running and maintaining a property (based upon estimates) before actually making a bid on one. If you plan to have tenants, once those numbers are added up and you add in the monthly rent, you can calculate an ROI that will give you a better idea of whether the income will cover your mortgage and maintenance costs. This will tell you whether you can really afford the property.
8. Using Any Contractor
Many things can go wrong when working with contractors, from shoddy workmanship to destruction of power, sewer or water lines. One needs to essentially look through the previous projects handled by the contractors they intend to hire, speak to their previous clients so that they don’t hire the wrong contractors for which the price to pay is high.
9. Forgetting Your Local Market
One needs to learn about the local market in order to make purchase decisions that are likely to turn a profit. It’s important to appreciate the level of demand and supply in the area, understand the values of similar properties in the area, and changes in market trends. Look at your target market to determine if there is demand for that type of property in that location.
Developing a feel for these parameters will help you decide whether or not to buy a particular property that comes up for sale.
Successful property investors often say the most crucial factor to consider before buying an investment property is the location.
10. Not Understanding Cash Flow
One of the significant challenges of owning rental properties is maintaining enough cash flow to keep up with the maintenance and repair needs. A rental property is going to require maintenance and repairs from time to time, and since you are the owner, you will be the one to pay for it. That means you need enough money on hand to address emergencies when they happen.
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