4 Big No-Nos When Developing A Property Portfolio
There’s more to good financial management than clipping coupons, comparing prices on your energy tariffs and keeping an eye out on who’s selling the cheapest gas. Good financial planning is also about legacy. It’s in ensuring that your kids grow up with an understanding of and respect for money. It’s ensuring that we will have something to leave them with when we are gone and that the seeds we sow now will flower into ongoing prosperity for future generations to enjoy. It is for this reason that many prefer to invest in the property market than in stocks, shares and other commodities. Property is more than just a means of passive income (that term’s actually kind of a misnomer) it’s a home for those who need it and a nest egg for your loved ones.
We tend to assume that those with property portfolios are uber wealthy multi millionaire tycoons and while there are certainly a few of those, many property investors are ordinary people just like you who have attained success through making shrewd decisions. If you want to grow a portfolio of your very own it behoves you to listen to those with experience, keep a close eye on property tips and learn from the mistakes of others who have come before you. With this in mind, here are some big no-nos commonly made by people attempting to grow their portfolios of which you must steer clear…
Letting your heart lead your head
You may feel an affinity for the property market because you’ve been able to turn a profit on personal properties that you have bought to own. However, while this may well be an indicator of success it can also set you on a path to failure. When choosing a property to live in, inevitably emotions play a part in every decision we make. If you’re building a portfolio, however, making emotionally led decisions can lead to a bum steer. Emotions can impede our critical faculties and decision making. Thus, we can walk through the door of a property that we would personally fall in love with, but lacks the kind of mass appeal for tenants that’s required in an investment property.
Keeping hold of a money pit
We all make mistakes. Unilaterally, the best way to deal with them is to admit to them, make reparations and move on. But when that mistake means that we’ve invested heavily in a property that’s turned out to be a money pit it can lead us to bury our heads in the sand and keep shovelling money into a black hole. Sometimes it’s best to recognise that we’ve made a mistake, cut our losses and move on.
Sure, this may mean that we take a loss on the property, but at least our resources will be free to pursue another property. Sometimes opportunity loss can be more costly than monetary loss.
Putting the “passive” in “passive income”
As an absentee landlord you may assume that once you’ve purchased the property and made it fit and favorable for human habitation all that remains is to sit back and watch the money flow in… But you’d be wrong. A landlord has a great many responsibilities and every new property you add to your portfolio multiplies those responsibilities. While a letting agent can take control of a lot of the day-to-day when it comes to managing a rental property, the responsibility to the tenants lies not with the letting agent but with you!
Putting all of your eggs in one basket
Just as a stock portfolio should be diverse enough to insulate you from risk while still allowing for significant dividends, so too should a property portfolio be diverse. When investors put all of their eggs in one basket (i.e. a particular type of property or a particular location) they increase their risk. If that particular type of property or the area in which its situated becomes less desirable, your property could become harder to fill, and if you are obliged to sell up you may not make as much back from the property and may even take a loss.
Not having an investment strategy
Finally, before you even view your first investment property, you should have a clear strategy in place. Not every property is a great investment, and even great investments on paper may not be great investments for you.
Ask yourself what you want to do with your property. Will you buy properties in need of renovation, invest in increasing their rental value then let them out? Or would you prefer to flip properties for a quicker profit? Neither answer is inherently right nor wrong, but your strategy will inform every decision you make. When you have a clear strategy in place you can hone your knowledge of the relevant markets by carrying our research and attending appropriate seminars.
Otherwise you’re just randomly buying, leasing and selling property.