Investment risk checklist: avoid mistakes when investing in real estate

5 mistakes investors make – that you should avoid. If you want to be successful with your first investment, avoiding these 5 mistakes should be your top priority. Learn from the mistakes of others and become a real estate professional! Click here to return to the guide: Real estate as an investment.

5 mistakes! What to look out for when investing?

Your goal is financial freedom? Anyone can build wealth with real estate. Investments allow you to build up money over the long term. By investing, you can make your real estate work for you and benefit from interest, dividends and price gains over time. However, investing in real estate without any knowledge is too risky. You don’t have to reinvent the wheel. Every real estate professional has already made mistakes that you can benefit from. Stick to this checklist, avoid the 5 mistakes and minimize your risk of failure. Let’s go!

Risk checklist: What you should avoid

Stick to these points and nothing will stand in the way of your successful investment:

1. Don’t invest in real estate with too low a return
2. Designing financing for the long term instead of the short term
3. Bring in enough equity
4. Financing compared
5. Calculate net return not just gross return

Find out now what the 5 biggest mistakes are that you can make when investing.

Real estate as an investment: avoid mistakes

Investing in real estate as a capital investment can be a wise decision to achieve long-term income and asset growth. However, there are also risks and mistakes that should be avoided. Here are some tips from real professionals on how to avoid mistakes when using real estate as an investment.

1st error: yield below 9%

Why should the return on an investment be over 9%? When buying an investment, you shouldn’t just ask yourself the question: How much will the property earn me? You should also ask yourself: How much do I actually need to cover the costs? As a rule, you should assume a 2% repayment of the purchase price and 2% maintenance costs. After all, an investment property has to be paid off and rented out, which involves financial obligations. With the current 5 % interest rate, you then arrive at a return of 9 %, which the property must generate. So if the yield is currently below 9%, you are making a loss on the investment. It is better to stay away from such properties.

2nd error: short-term loan

Why should you choose long-term financing over short-term investments? In two words: Inflation and capital appreciation. When financing an investment and considering the impact of inflation, it is crucial to consider long-term strategies. Inflation leads to a loss in the purchasing power of money over time, which is why it is more favorable to finance long-term.

What are the advantages of long-term financing for you as an investor? Long-term loans usually have lower interest rates than short-term loans. This can significantly reduce the overall cost of the investment. Long-term financing offers stability and planning security. You know exactly what your monthly payments will be and can manage your budget better. Real estate generally increases in value over the long term. If you are buying real estate to benefit from the increase in value, long-term financing makes sense, as you need time to let the value of your property increase.

Long-term financing can also offer tax advantages, such as mortgage interest, which is tax-deductible in some countries. Long-term financing reduces the risk of interest rate changes. With short-term financing, you are more susceptible to interest rate increases that could increase your costs. Long-term financing can stabilize your monthly cash flow, as the installment payments are often lower than with short-term loans. This makes it easier to cover ongoing costs. Long-term financing offers flexibility. You can use your capital over the longer term and have the option of renting out the property, which can generate additional income.

The advantages of long-term financing at a glance:

• Lower interest rates
• Planning security
• Benefit from real estate appreciation
• Tax advantages
• Risk minimization
• Stable monthly cash flow
• Flexibility

3rd error: below 20 % equity ratio

Why should you use at least 20% equity to finance an investment? A higher equity base often leads to lower monthly repayments, which can improve the stability of your cash flow. This is especially important if you are using rental income to cover loan installments.

4th mistake: do not compare financing

Comparing financing is important to ensure a successful investment. Why? By comparing financing options, you can identify the most favorable loan terms, such as lower interest rates and lower fees. This helps to minimize the overall cost of the investment. Depending on your financial goals and investment timeframe, different financing options may be more suitable. A comparison will help you choose the one that best suits your goals.

5th mistake: relying solely on gross return

The gross return merely serves as a basic measure for initial considerations and decisions. It provides a rough overview of the profitability of a capital investment. It can be helpful for quick orientation. However, the net return is the more meaningful indicator. Its importance lies in the fact that it is more comprehensive and precise, as it includes all actual income and expenses. This includes expenses such as taxes, insurance, maintenance, administration and financing costs. By taking this into account, the net yield provides a more realistic assessment of the actual return on your investment.

Tips: become successful with a capital investment

More tips from experts on becoming successful with an investment in this informative video.

Real estate as an investment for beginners: Guide

Want to get started with real estate now? Read one article, that’s all you need for the most important basics of investing in capital assets. Start your career in real estate now with the investor’s guide.

• Guide for beginners