Just like in every other endeavor out there, there is always a right way and wrong way of doing things. I am a firm believer of doing things right…always, otherwise why do it at all and burn your fingers while you are at it?
I have managed to identify the most common real estate investing traps/mistakes that most people fall for and how you should avoid them:
#Mistake 1: Failing to Plan is Planning to Fail
Generally, a lot of people fail to plan their personal financing and this behavior transferred when making investment decisions. Particularly purchasing real estate without knowing why… only that you got a great deal for it and thus treating it as a transaction similar to buying a great part of shoe and not an investment. Some of the common pitfalls you might find as a result of not planning well are:
• Running out of Cash -the worst thing that could happen, rendering your property uninhabitable and hence no income. Running out of cash can happen for one or two reasons underestimating current and future expenses on the property in terms of repair cost or other government related expenses.
• Miscalculating estimates – Underestimating  the repair costs involved and choosing below standard contractors.  In order to avoid cost overruns and poor standards of work it is wise to budget for repair costs  and seek advise from experts when choosing to buy a rental property so that, on purchase you are well aware of the costs, make wiser and more informed decisions.
• Choosing the wrong real estate strategy – this is detrimental to your financial future and success. Since there is no perfect strategy of venturing into real estate, planning enables you to identify the various strategy that suits your unique strengths, your short-term needs, and your long-term goals.
#Mistake 3: Playing a Lone Ranger
When venturing into real estate investing, it would be wise to build a ‘team’ of go-to people that you can trust and have build a relationship with to offer you great advice and can do great work for you. You can simply have a one real estate agent, a great valuer, an inspector, a great lawyer and a good lending institution.
#Mistake 4:Â Misjudging the Value
Misjudging the value could lead you to paying too much for a property that is not even worth that much. Therefore, it is best to always do your homework before purchasing any property. Analyse every aspect of the asset – location, market price, resale value and expected rental income. But, above and beyond that, just as you do with any other investment and educate yourself on all matters relating to real estate investments.
#Mistake 6: Performing Due Diligence
Property analysis is the basic due diligence that must be performed in order to prevent you from draining your resources into a property just because it is said that it will appreciate in value. Other things you must do well:
a. Obtain a very good professional third party property inspection i.e contractors and seek  the opinion of value and rental comps
b. Cross check your repair estimates (please see mistake #1 above)
c. Evaluate the location and local ordinances
d. Enlist the services of a lawyer to avoid some very common pitfalls to property purchasing in Kenya.
Without playing your part well as an investor, i.e. cross check and double check any assumptions made with regards to any investment, could potentially leave you drained both financially and emotionally upon realizing that your get-rich-quick scheme fell flat on its face.
#Mistake 5: Bad Financing
This can be the biggest mistake you can ever make and could make you lose money or even be on the verge of bankruptcy. Some of the things to avoid are:
 1. High interest rates and/or floating interest rates – knowing our local financing institutions, you have to be very very careful about these things. Always seek out the best deal possible and nature goo relationships with various financing institutions. Since they are more than happy to take your money, make sure you get the best deal possible.
2. High Monthly Payments – do not tie yourself to high payments that you are not sure you can pay.
3. Balloon Due & Long Moratorium Periods – paying large sums of money at certain intervals of the mortgage or seeking very long moratoriums for no reason is risky business as interest keeps accruing daily.
4. Personal Recourse i.e. giving the bank the right to collect on default is risking yourself too much. As such you personally guarantee the loan with your other assets and/or future earnings.
Try as much as possible to gain a mortgage that at least saves you from these mistakes. That is one that has reasonable interest rates, comfortably fixed payment terms with amortizing payments, and no balloons and unnecessary moratorium periods. Unfortunately, you cannot escape personal recourse, so while you are at it, get the best deal possible.
#Mistake 7:Â Not Learning From Your Mistakes
You have many mistakes to avoid in life. However, I think the biggest and most important one is making the mistake of not learning from your own mistakes. Learning from your own mistakes and those others. Otherwise, all this would be for nothing.
Always seek advise and continuously learn. But, I hope these 7 mistakes help you continue moving forward at whatever pace you find most comfortable for yourself.
Happy Investing!
