Over my two and a half decades of property investing, I’ve seen a lot of mistakes property investors including myself have made in deals. Here are seven of the most common mistakes and how to avoid these traps.
1. Abdicate from decision-making
Deal control loss is a major mistake especially pertinent to many of the newer property investors. Deal control loss occurs when the property investor’s actions are being dictated by their property support team.
This support team consists of mortgage broker, solicitor, surveyor, builder and architect. In other blog articles, I cover how your support team can screw up your deal if you allow them to.
Remember that this is your deal. Your support team (sometimes referred to as your power team) are there to support and advise you. They are not there to make your decisions for you – making the buying, renovation, building, selling and rental decisions are your responsibility.
If you outsource your decision then you are still the person that takes responsibility for that, and you cannot blame others should the deal go wrong.
The responsibilities of your support team are:-
- The mortgage broker advises on the best deal for your particular property deal
- The solicitors is there to advise you on the potential risks to the property
- The surveyor advises you on what they find potentially wrong with the property
- The architect advises you on the designs and layouts possible with your property
- The builder/renovator advises on the materials and costs involved in taking your property forward
Note that in each case the operating word is that they ADVISE – as the deal owner you can elect to ignore their advice.
Keeping control of your property, and the decisions made that affect your property, is the most important thing you can do. It is your job to know exactly how much the deal is worth and then to accept or ignore your team’s advice.
2. Show off
Ego is the number one cause of property investors losing their entire property portfolio. If the deal doesn’t work out – ditch it. No matter how much work you’ve done on the deal do not feel obligated to buy or to show off.
Work with others. Share the accolades with others and ask for help on every single decision especially when you are a newbie. There are hundreds of property meetings, forums, meetups and online sites that provide you with the opportunity to network with other property investors.
Whatever the issue: property renovation, building, rental, purchasing – post the question on the forums and get a sanity check on your deal.
3. Chase the deal (off a cliff)
Depending on whether you are selling or buying, and depending on the circumstances, try to leave some profit for the other person. One property investor I know, lost over a million pounds in profit by trying to reduce the buying price of an office block by an extra £200,000 because the seller had said that he would give him the extra £200,000.
The seller changed his mind but the property investor was determined to argue for the £200,000. The property investor’s architectural plans would allow him to make in excess of £1.5 million pounds. He could easily let the seller have the £200,000. He refused and lost the deal.
4. Make late night decisions
Never make a decision when your mind is unclear. If you are tired or upset, no matter what is at stake, find some excuse to make the decision when your mind is clearer. As a mentor to many property investors, I have had to correct financial spreadsheets and help undo decisions made by investors under pressure. These decisions would have ultimately cost them substantially in time, resource and finance.
It is important that you make all major decisions when you have a clear head.
5. Shirk the little things
Many reading this article will simply read the title and think “Oh I understand this – Ben is talking about me needing to be more organised.” Yes, that is exactly what I’m talking about. However, the organisation must be in the little things. Organisation of property files – one for each property, obtaining at least five sets of keys when you purchase a property, having a separate set of keys for each investor in a joint venture, and so on.
When you are organised in the smaller aspects of your property business, the larger aspects will take care of themselves. This is not such a big deal if you are only buying one or two properties but when you are building any kind of portfolio, your disorganisation will negatively impact on you and your team.
6. Become “too efficient”
You never need to respond to anyone immediately. In fact, it’s downright crazy and causes problems similar to making decisions under pressure. Yes, I know it’s the final request for a council tax payment before they send the bailiffs round, but they don’t know you just purchased the property.
Kick back, go for a drink, think about the situation, get input from others. You’ll find you can obtain a better deal elsewhere, or that a tradesman is lying to you, or that that extra insurance is over-rated. Incredibly many of my seemingly “lucky” breaks have come from me meeting the right person at the right time, why did I meet them? Because I went to a party, or the pub, or had a break.
If you are being pressured for a decision, let them know you have other things that are demanding your time and negotiate a specific time to get back with an answer at least 24 hours later or a time that gives you ample breathing room.
7. Lack of cynicism
I’m unsure what people think “due diligence” really means. They seem to explain the words correctly and precisely, but their actions seem to dictate otherwise. They explain to me that “due diligence” means “do your own research” and then they continue to listen to their mate, or the news reporter, or the salesman.
When anyone tells you about a great deal and forwards a property deal on to you – you still need to do your own research.
Here are some phrases that have been thrown at me as to why people went forward and bought lemon properties i.e. they made a loss and needed to sell the property quickly or make a bigger loss.
- “He is a well-connected businessman and is a partner with Richard Branson and many other famous business people.”
- “She was my property mentor.”
- “They have several hundred properties already and were too busy to buy this one.”
- “She told me the property was 50% below market value and would go in the next hour.”
- “He is a prominent property investor and makes many posts on the forums.”
Here’s my response to mentees whenever they give a reason in which they have not done their own research
“Look at my face….I don’t care”
Whatever reasons you are looking to purchase a property, you must must must do your own research.
Today’s property market has so many savvy well-informed property investors, so it’s incredibly unlikely that you are buying a great deal. Normally something is being hidden in the process for example; major structural issues in the house or a dump site is about to be opened within half a mile, or the major employer for that area is closing down.
Again I restate: it is important you do your own financial calculations and research no matter where the property deal came from.
So there you have the seven deadly sins that property investors are guilty of and, as a result, have lost some amazing deals or made a huge loss. For you time poor folks, here’s a quick summary:
- Keep control of the deal
- Keep your ego and greed in check
- Focus on your long-term goal and leave money (even if unfair) for the other party
- Make decisions with a clear mind and not under duress
- Be organised in the little things
- Don’t be too efficient in getting back to people and paying bills
- Always do your own research.
Happy property hunting.
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