In a recent episode of Property Investing Insights with Right Property Group, experienced investors Victor and Reshmi Kumar revealed the top mistakes made by inexperienced investors who are new to the world of property.
“It is sad because they are not only wasting time, but they are also not making the most of the money they have,” Reshmi Kumar said.
“They could make better decisions, they could choose the best properties, because they are looking at the property itself rather than where that property is going.”
Here are the five most common mistakes the couple has seen over their decades-long career as investors.
1. Focus on debt
Buying property is a substantial financial investment and the scale of debt can often cause panic in new investors.
“The biggest mistake people make today is focusing on debt instead of the money needed to control it,” said Victor Kumar.
“Let’s say they owe a million dollars in their portfolio. They focus on a million dollars (…) but they don’t focus on: ‘Well, with that debt, how many dollars a week am I putting towards controlling it?’”
Rather than viewing debt as an undifferentiated mass, translating costs into weekly expenses can keep panic under control and allow investors to effectively monitor their growing assets.
2. Keeping up with others
Every individual investor has different needs and circumstances, so blindly following the crowd can be a recipe for disaster.
Investors who “try to keep up with the crowd” buy properties where they have been told the growth prospects are good, rather than doing independent research and seeking expert advice.
“If everyone buys in Queensland, they’ll buy there rather than looking at their own portfolio and saying, ‘Is Queensland a good fit for me?'” Victor Kumar said.
Reshmi Kumar noted, “Everyone follows their own path and everyone’s scenario is different, so what works for someone may not necessarily work for you depending on what the market is like.”
3. Not keeping track of cash flow
Real estate investing is inherently a risky venture and it is essential to know exactly where you stand financially before taking the plunge.
In the early days of their investing careers, Reshmi and Victor Kumar sometimes found themselves taking risky decisions, unaware that their cash flow was in the red.
“The company would cover the negative cash flow,” Reshmi Kumar recalls. “There were a lot of mistakes made in the beginning… and the biggest one at that time was not keeping track of the cash flow.”
4. Overconfidence
Another big mistake new investors make is overestimating their own knowledge and getting into difficult situations before they have developed skills and experience.
When the Kumars were young, they purchased a large interstate property after attending a seminar on subdivision.
“This is the first development I have done. I am making it more complicated by doing it in another state, without mentors and without having an established system,” said Victor Kumar.
“Without understanding the full DA process, we paid the deposit and were stuck in a contract to purchase that house.”
It took the couple a year and a half to resolve the dilemma and, in the end, “they had to carry out the development without funding.”
5. Paralysis by fear
Being indifferent to risk can lead to tricky situations, but trying to micromanage all the risks involved can also pose its own challenges.
When a renewal problem arose early in their career, the Kumars ended up “being too late to solve the problem” because they had succumbed to “paralysis of fear.”
Finally, Victor Kumar said: “We stood up, dusted ourselves off and said, ‘No, let’s get on with it.’”
Listen to the full conversation here.
