The main pattern that unites almost everyone who invests in real estate is that they buy a property and never sell it. This pattern is the enemy n ° 1 to obtain high sustained yields in time. Here at Conveyancing in Melbourne you will find the cheapest conveyancing in Melbourne to ensure success of your transfers.
As in any business, buying well, that is, below market value, is key, especially in real estate investment that has high transaction costs, although it is true that it is very difficult to achieve this without being a sophisticated investor. But in the sale, process that is usually easier, is where investors usually fall into the trap. And the name of the trap is not to sell at the appropriate time. This error has a negative impact on performance, even much higher than the one that has wrong buying.
There are several myths that have been taking root in investors that facilitate falling into this trap. These are the most common:
- Believing that the brick always rises and never falls.
It is demonstrated that if a strong appreciation of a property is achieved for more than 5 years, it is difficult to maintain that. The problem is that when the property is at a very high price and although it is easy to sell it since there is usually a lot of demand, most do not sell thinking that the value will continue to grow at the same rates. And that’s where the big mistake is made.
Remember what happened in 2001 in Argentina. Prior to that, the properties had reached sky-high prices. With the crisis, their values plummeted on average close to 50% but then recovered and exceeded that value. But what would have happened if you sold before 2001, for example in 1999 or 2000 and with that money, acquired a property in Spain or the United States and then sold it in 2003 or 2004 to buy back in Argentina? The magic of the real estate cycles would have allowed him to buy again in our country between double and triple the properties he had in 1999. Great business that would have been achieved through an active strategy against the traditional passive strategy of maintaining a property without rotate.
- Not measuring the achieved performance or its potential. Nor comparing it with other investment alternatives to decide what to do.
The effort and hours of work that many people do in their different professions and activities to gather enough money to buy real estate is very large. But in most cases, after achieving it, the focus is not on maximising the return on that capital. Instead, we think about generating enough money again to buy another good and keep the previous one.
The impact of not taking care of maximising it is very significant. By efficiently managing a real estate investment, you can multiply by 10 the capital invested in 20 years.
- Not distinguishing between real estate investments and real estate for own use.
It is important to separate what are real estate for investment use since mixing them is very likely to make the mistake of acquiring properties that are supposedly for investment but are not the most appropriate to generate high returns. These also tend to have limitations to execute an active management.
If it is for your use, buy what you like and in the location you want. And keep it as long as you want. If it is for investment, enter and exit when appropriate.
- Cultural and social issues have a heavy weight.
It could be synthesised with what many grandparents said: “Never sell the properties you buy. When you can save, I kept buying but not selling. ” Social issues also have great relevance. That is why the prejudices that make us make mistakes arise: “What will they say if I sell my house in Punta del Este and buy apartments in Flores?
During a certain period of time, the best business may be to acquire a Premium residential asset in an exceptional location such as Punta del Este, Puerto Madero, Miami Beach or Brickell. But also, throughout the cycle there will be times to acquire real estate in areas of middle / lower class, as these also have strong appreciations. Remember this: The real estate business is not location, location, location as they say those who promote and develop Premium assets in these locations. The business with the real estate is timing, timing, timing and there are too many examples to prove it.
- A question of comfort and lack of knowledge: “So I’m going to sell it, what if I’m wrong?”
It is generally uncomfortable to have to be informed, trained and seek opinions from different real estate, financial and tax advisors, among others, to achieve an objective vision and be able to make a decision, but if you do not do it, nobody will do it for you and the cost of not doing it is very high.
- Believe that real estate investment is always local or always international.
Another great enemy is to see the real estate investment only as local or international.
As many people consider it that way, they generally do not sell because they will do it if in the same market it is not business to buy again. That’s exactly where they have to look. It does not make sense to sell to buy back in the same market and type of asset without obtaining strong advantages. The key is to move from asset types in the same market or go to different markets in order to continue building profitability. For that, surely you will have to look for real estate advisors in different markets since generally the scope of these is usually limited to neighbourhoods and types of assets.
- Immobilising by thinking about the cost of exit: “If I sell, I will lose an X% in commissions, writing costs, etc.”
When it is sold you have to assume costs of deeds and commissions and this is often a limitation. But the issue is thinking how much you stop winning if you do not sell. These costs must be taken as part of the operation.
- Believing that the property has a higher value or pretend to obtain a price that is not worth: “If you do not give me so much, I do not sell. I do not need to sell. “
Sometimes we have unrealistic profit expectations or sales values that have nothing to do with what the market validates. This means that we maintain the asset and, many times, we lose the possibility of leaving, at the best moment at the best price. Then when the market adjusts, by not selling it, we have to wait several years to obtain the same or less to which we must add the lost opportunity cost. There are dozens of examples of this type both in Argentina and in Uruguay, the US or Europe.
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