I was recently talking about buying the wrong property to a developer whom I admire greatly and with more than 40 years of experience in property. He told me:
“It’s better to have not bought and wished you had than to have bought and wished you hadn’t”.
He knew this to be true from his own mistakes (or what I would prefer to call ‘lessons’).
If you’ve ever bought a property and not gotten the results you wanted, you’re not alone; it’s way more common than you would think.
Just last month, I saved one of my clients from making what could have been a huge mistake by focusing her attention on the potential complications of a property she was looking to buy.
#1 Buying “out of town” without local knowledge
#2 Making an “emotional” purchase instead of a “business” purchase
When we first met, she was very committed to investing in a family home close to where she lives, which would have been cash flow negative, moving her away from her passive income goal.
So, I suggested she put on a business hat and look further afield.
She came to me excited that she had found a great property in an out-of-town area. Two red flags stood out to me as a seasoned investor.
- Find out more about the area and start thinking like a local. These were three one-bedroom units on separate titles. Why were they not being sold individually? They seemed like a bargain with an Auckland hat on. Is that true in this area?
- The roof needed replacing, not major, but with a steep site; what would the scaffolding cost be?
Those two red flags turned out to be a very big deal.
This part of the country is mainly flat, so there was little interest in one-bedrooms with forty steps to get to your front door and no on-site parking. The two companies she approached about the roof wouldn’t even quote the price of scaffolding on that slope.
As an investor, I have learned to take the emotional Quadrant One* family home (in an area I love) hat off to avoid the Quadrant Two* mistake of having to top up a second, third or fourth mortgage, making me cash-poor.
Instead, I learned to put on my business hat and do the numbers looking for a Quadrant Four* positive passive income (from day one – yes, even in this market) property and use Quadrant Three’s* active income to make up a deposit instead of leveraging (if needed).
Many investors accidentally find themselves cash poor, stressed and disillusioned they bought the wrong property. Instead, you want a cash-rich passive income property to provide you with a lifestyle of security and freedom from buying right (even if you have to get help to do so).
Nichole Lewis is the author of Property Quadrants: The Passive Income Formula – Own Your Financial Future Through Real Estate Investing.
*You can find out more about the four quadrants in my book Property Quadrants or at www.propertyquadrants.com