Why People Lose Money in Property…..
I believe property is a game of survival. Many property investors want to get that goal of being able to retire and have properties cash flow for them without work. Unfortunately, too many times this just does not happen. I have survived so far in property and it is never easy. It is always about balancing risks and rewards. I am extremely risk adverse. I have gone through 3 real estate crashes & cycles. I have mentioned it many times in this blog…one of the biggest reasons people lose their property is due to LEVERAGE!
Can you imagine working your whole life for a portfolio of properties…yet you want to pull out a little more equity when refinancing….or you go for a teaser rate?
Bing bang….rates go up…tenants lose their jobs…a recession occurs….tenants do not pay…Guess what happens next to over leveraged hard working property investors?
Every investor I speak with who wants to buy from us, virtually wants to leverage….some want the max…some prudent think 60% is completely safe! In Florida…where my wife and I worked, prices fell 50%…Yes 50%. Our personal property that we lived in we sold in Jan 2006. It was an amazing house ….all glass on a lake …from a famous footballer. This house fell 50%…However it recovered and now above what we sold it for…but if you can not hang on….you are hung.
Another couple reasons people lose in property…
Knowledge or education….
With a lot of real estate investors; they believe that because they are buying properties, they are going to succeed. Never mind that they bought the wrong property in the wrong area with the wrong financing. They might have issues renting it…or a new block of flats are going in nearby. There is simply not enough careful enough analysis.
You see, so many people buy properties without doing the right math. As I often say, “Without the right math going into an investment, you’ll never get the right profit coming out of it.” Property is a business. Some think they manage a HMO from China. Some think they can simply source a Professional HMO from India. I have seen these stories.
I believe one of the greatest reasons investors fail is that they don’t treat their property business like a business.
- They never develop systems to help them as they grow.
- They treat their tenants like friends.
- They don’t create clear policies for finding good tenants.
- They don’t screen their tenants….
Property is a business….One with a great deal of challenges…
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