There’s no question that research is the lifeblood of a successful property investment. Without thorough property research, you’re investing blind and taking on a huge risk.
Thanks to the explosion of available information online, doing your property research these days has become so much easier. Everything is available at your fingertips.
Yet many people, even seasoned investors, can sometimes make costly mistakes when doing their research. These include:
1. Doing too little research
Cutting corners with your property research is guaranteed to get you into serious trouble. This is especially true in hot markets like Lagos and Abuja where buyers are falling over each other to nab a property.
Don’t be tempted to forgo your research just because everyone else is doing it.
No matter how “good” a property looks on the surface, you can’t and won’t know the full picture until you start digging deeper.
2. You can’t know the full picture until you start digging deeper
You need to know whether this property is a good deal or not. You can only make this call if you know all the information about this property. For example, how does it compare with those that are currently in the market or have been sold?
This quick check alone not only helps you avoid overpaying but also helps you in negotiating down the price.
You also need to establish if this type of property is in good demand for the suburb. How much will it rent for? Who will rent it? Can you offload it in a hurry in the worst case scenario? Will you be able to borrow against this property?
Failing to do all this upfront research will ultimately lead to you buying an underperforming property at best and a money-losing investment at worst.
Research doesn’t have to be a lengthy process, but you need a clear idea of what makes for a good investment property. Creating your investment criteria and going through each checklist when assessing a property will ensure you’re covering all the bases.
3. Doing too much research
The flipside of doing too little research is doing too much. Going overboard with your property research often leads to analysis paralysis where you’re unable to take action as a result. When you over-analyse each deal, you can become overwhelmed by too much information. This not only creates massive confusion but also fear that you’re making the wrong decision.
This is a scourge that afflicts not just the beginner investor, but also seasoned players. Just like doing too little research, the best way to avoid doing too much research is by creating a due diligence checklist.
This helps you look at all aspects and ensures you’re focused. This also helps you move forward with confidence.
4. Create a due diligence checklist to ensure you stay focused.
Without structured research, you could be spending too much of your time doing due diligence on a property that by the time you’re ready to buy, it’s already been snapped up by a more decisive buyer. By all means do the research, but ensure that you take action as soon as you’re satisfied with your numbers.
5. Focusing on the wrong indicators
Too much focus on some indicators such as population growth for example and not taking into account the level of supply coming into the market could lead you to buy in an under-performing area.
While population growth generally indicates housing demand, it’s not the only indicator to take into account. You need to look at the existing supply of housing too. Areas with strong population growth are heavily targeted by developers. They can sometimes overbuild then prices will drop due to oversupply.
Another data point that investors tend to focus on is the gross rental yield. But there’s also a risk of simply looking at the high rental yield without scrutinising what’s behind this big number.
Rental yield depends on the rental income and property prices, so a good investment would have a rising rental yield as a result of growing rental income and prices. But rental yields can also rise as a result of falling property value.
If you’re too focused on the high yield without looking at the price performance, you could be buying in an area where you might be getting high yield on paper, but the value of your property is falling.
6. Be prepared to put in the hours conducting your due diligence.
As you can see, there’s really no substitute for doing your research. If you want to succeed as a property investor, be prepared to put in the hours conducting your due diligence. Don’t be tempted to forgo your research, no matter how hot the market is. But at the same time, don’t waste your precious research by not doing anything about it