Whether you are a landlord or looking to get onto the property ladder, there can be a number of mistakes that everybody is guilty of. Arguably millennials have got it tough, especially in terms of getting a property. There’s a huge competitive market, rising costs of raw materials, and so many other variables that can easily make it an overwhelming concept. Therefore, we need to go into the process with our eyes open. Here are some of the most common mistakes millennials tend to make when investing in property.
Buying With FOMO (Fear of Missing Out)
Fear of missing out is something that is not exclusive to millennials, but there is always that extreme fear of missing out on a hot housing market that can lead to impulsive decisions and potential remorse down the line. It can be very easy to become swept up by market hype. While every real estate agent can certainly help in buying homes with a level head, it’s vital to remember that fear of missing out is something that’s individual to us.
We can make poor decisions like buying at market peaks or stretching our budgets too thin without conducting proper research and inspections. Experts warn against letting FOMO dictate home buying because the very fact of the matter is that if you are patient and you assess your finances and situation properly, ensuring they align, you can always get the right house for your needs. Many people make the mistake of getting the highest possible mortgage, thinking they’ve got a better house. While this is true, if you are mortgaged up to the eyeballs, you can find yourself working to pay for these four walls rather than actually living a proper life.
There’s a variety of FOMO marketing tactics that you will see, for example, limited stock alerts and countdown timers that can induce anxiety in buyers. While these are common in real estate markets, there is that pressure to feel like if you don’t pounce on it now, you’ll miss out. Although some level of FOMO is natural, we should always remember that decisions must be made rationally based on our personal circumstances to avoid regret or costly mistakes when buying a home.
Not Doing Proper Research and Not Conducting Due Diligence
Thorough research and due diligence are vital to avoid making uninformed decisions. Property diligence ultimately helps mitigate costly errors because we conduct a thorough examination of the property as well as the legal aspects, the conditions in the market, and the investment strategy. If we don’t conduct comprehensive due diligence, there can be a number of unpleasant surprises after the purchase such as:
- Structural problems
- Legal issues
- Unexpected challenges that can be expensive and ultimately stressful to resolve
When exercising due diligence, it’s always worth following this loose structure:
- Checking property titles and legal records
- Reviewing planning permissions and local regulations
- Assessing ongoing costs, for example, maintenance, taxes, and HOA fees
- Getting professional inspections and surveys done
- Understanding the neighborhood dynamics and future developments
The last one is particularly important because you need to picture yourself in that property, especially if you are looking to move to your dream home. Skipping steps like professional home inspections can result in regret and we can easily miss issues that allow us some sway in terms of negotiation. Although due diligence is not mandatory, it helps us all avoid significant risks and costly mistakes when making such a major investment.
The due diligence process should start as soon as you have a serious interest in a property, way before making offers or signing contracts. It can take several weeks for a thorough evaluation, but it’s worth following because even if this house falls through, you’ve undergone the most rigorous training regime for buying a home.
Following Outdated Advice
The housing market has evolved at such a pace over the years that we can easily follow the advice of people who have been there before, thinking it is gospel. As much as our parents want to give us advice, sometimes we need to conduct our own research when buying a home. There are so many key points about home-buying advice that are outdated in the United States:
- Many people still believe they need to save a 20% down payment to buy a home. However, if you look at the statistics, the average down payment for first-time buyers is only around 6%, and there are other low down payment options, for example, FHA loans. While putting down 20% is absolutely recommended if you can afford to because it avoids private mortgage insurance (PMI), it is not necessary if it delays your homeownership for the long term.
- Coming in below the listing price with your initial offer is also outdated. In competitive markets, this strategy can cause you to lose out on the home, and being willing to offer the full asking price or slightly above may be necessary.
- The notion of wearing a poker face to hide your true interest in the home is outdated, particularly in hot markets. Expressing your enthusiasm and what you love about the home could actually make all of the difference.
- Disclosing your full current position, for example, if you’ve got children or you are looking for your forever home, can make you far more competitive with other buyers, especially if this is your first property.
- Forgoing the home inspection is another unwise component. Sometimes we think that we just want to get into our first home, but inspections can reveal major issues that can put you in a position of power. For example, you could renegotiate or back out of the deal.
- For many people, it makes more sense to start with an affordable starter home and upgrade later as needs change. Sometimes we can prioritize a forever home when, in fact, we are far better off just getting onto the ladder.
- Additionally, relying solely on major listing sites can cause you to miss out on other opportunities, which is why working closely with a local real estate agent is the best course of action because you will gain access to a wider range of listings.
Stretching Budgets Too Thin
When investing in property, there can be a mismatch between the head and the heart. This is particularly important for those who are starting out on their careers as property investors rather than just looking for their dream home. Buying the largest home possible as an investment is now considered to be outdated.
Millennials have their budgets stretched farther than anybody, and therefore it’s vital to buy the smallest home to live in and invest your excess funds elsewhere to avoid being overly stretched. There are so many budget guides out there and other pieces of advice, but arguably one of the most impactful is the 50/30/20 method, where 50% of your earnings (after tax) goes on the things you need, for example, your rent, bills, and shopping. Then the 30% goes on the things that you want, which could be treats for yourself, and the remaining 20% goes into savings or paying off debt, whichever one is a priority.
When it comes to stretching our budgets too thin, can expose us to significant risks if the housing market cools and the values decline, which could leave us underwater on our mortgages. Calculating costs beyond mortgage payments, such as insurance, taxes, repairs, and everything else, can help us to ensure the investment is truly affordable in the long term. Many people look at a large property as being a major investment, but the advice is very simple: make rational, well-researched decisions that align with your financial means rather than emotionally overextending yourself into a property you cannot afford in the long term.
What Is the Solution?
With all of these issues, it can leave us following a honey trap that can take years, if not decades, to get out of. It’s very easy to blindly follow outdated advice, especially if we don’t scrutinize it against current market conditions and even societal norms.
Lots of people think that they need a home, and while this can certainly seem like a logical train of thought when you’ve got people depending on you, it’s vital to spend time considering if this is exactly what you want. Real estate is a valuable commodity, and the modern climate since COVID has made everything incredibly precarious. This once-in-a-lifetime event has rendered the housing market very unstable and hazardous.
This is why there should be a balance between the head and the heart. Many people think that becoming a landlord is an excellent way to make extra money on the side, but money is only one piece of the puzzle. It requires keeping our emotions in check and recognizing that investments should be made with some form of business acumen. It’s never too early to get involved in real estate and investments in general, but it’s about making sure that you have the head on your shoulders to deal with what could come your way, especially in the next few years.