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Is positive cash flow being claimed? An investor should work out through the numbers and ask some questions. At what level LTV is a positive cash flow claimed? What are additional costs each month which would erode cash flow?
By doing some basic due diligence on real estate websites an investor can also check whether the claimed rents are realistic and whether their purchase price is in line with the market average.
I can assure you that lots of investors would have wished they would have traded a few hours of due diligence for the massive amounts of money (and most likely money earned through much effort) they lost in blindly believing a marketing agent.
This is not to say that marketing agents are deliberately trying to mislead people but sometimes even their sources of information could be wrong. Good agents will encourage you to do your own research on the numbers.
2. Not visiting the development or investment before purchase.
Although a savvy investor can find out a lot about the development through pictures and floor plans, a visit before choosing your flat can often pay off hugely in the long run.
Does one side of the building face a noisy intersection or directly into another building? These things will limit the ability to resell the property and achieve maximum rents.
As well, in some areas (and especially in Czech Republic) locals will shy away from any flat which could somehow be reached from the ground, because of security reasons. The height off the ground can sometimes be hard to determine only from pictures and floor plans.
Another major factor is the area that the development finds itself in. The marketing material may hide the ugly industrial factory which is just around the corner but a visit onsite will give an investor the complete picture.
It is vital to approach a deal with eyes wide open.
3. Selling out of the investment too early.
How many who bailed from the stock market in the doldrums of 2008 to 2009 now wish they would have held on for a couple years? (As a reference please see the article: 3 Lessons Learned From A Stock Market Crash Applied to Property Investing)
A good thing (and also be a bad thing) about property investment is that it is not extremely liquid. The barrier to retrieving your money from the investment is quite high. This is actually a good thing because it forces investors to spend some time thinking about whether they should really sell or not.
However, too often we see investors bail on their investments because of a short-term downturn or problem. Did a vacant period extend longer than you’d expected or rents have not increased over a couple year period? A problem tenant cause some headaches? Don’t throw out the baby with the bath water!
4. Not viewing the investment as it currently is.
Many property investors are in the unfortunate circumstance that the property has gone down in value since it was purchased.
When comparing purchase price to current value many owners determine that the investment is not performing as they had hoped and decide to move their money elsewhere.
However, what they fail to do is reassess the investment at the current value. If they were to sell and get their capital out, where would they move their money? At the current value is the rental yield good? What is the prospect going forward on this investment?
You can ask any questions about this article or Czech property in general, by contacting us at: info@czechpoint101.com.
Avoid These Costly Czech Republic Property Investment Mistakes
Submitted by Nathan Brown on – 2 Comments |
We have now assisted, and continue to assist, hundreds of investors with their property investments in Czech Republic and there are some recurring mistakes that we have seen them make.
Those who have done the worst in their investments usually made one or all of the following mistakes:
1. Not performing their own due diligence on the numbers given.
This continues to blow my mind when investors trust the word of marketing agents and put in substantial capital of their own without sitting down for a few hours to work through the numbers themselves.
With a property investment you need to perform your own due diligence.
Is positive cash flow being claimed? An investor should work out through the numbers and ask some questions. At what level LTV is a positive cash flow claimed? What are additional costs each month which would erode cash flow?
By doing some basic due diligence on real estate websites an investor can also check whether the claimed rents are realistic and whether their purchase price is in line with the market average.
I can assure you that lots of investors would have wished they would have traded a few hours of due diligence for the massive amounts of money (and most likely money earned through much effort) they lost in blindly believing a marketing agent.
This is not to say that marketing agents are deliberately trying to mislead people but sometimes even their sources of information could be wrong. Good agents will encourage you to do your own research on the numbers.
2. Not visiting the development or investment before purchase.
Although a savvy investor can find out a lot about the development through pictures and floor plans, a visit before choosing your flat can often pay off hugely in the long run.
Does one side of the building face a noisy intersection or directly into another building? These things will limit the ability to resell the property and achieve maximum rents.
As well, in some areas (and especially in Czech Republic) locals will shy away from any flat which could somehow be reached from the ground, because of security reasons. The height off the ground can sometimes be hard to determine only from pictures and floor plans.
Another major factor is the area that the development finds itself in. The marketing material may hide the ugly industrial factory which is just around the corner but a visit onsite will give an investor the complete picture.
It is vital to approach a deal with eyes wide open.
3. Selling out of the investment too early.
How many who bailed from the stock market in the doldrums of 2008 to 2009 now wish they would have held on for a couple years? (As a reference please see the article: 3 Lessons Learned From A Stock Market Crash Applied to Property Investing)
Most Czech property prices are still down around 15% from the 2007/08 peak
A good thing (and also be a bad thing) about property investment is that it is not extremely liquid. The barrier to retrieving your money from the investment is quite high. This is actually a good thing because it forces investors to spend some time thinking about whether they should really sell or not.
However, too often we see investors bail on their investments because of a short-term downturn or problem. Did a vacant period extend longer than you’d expected or rents have not increased over a couple year period? A problem tenant cause some headaches? Don’t throw out the baby with the bath water!
4. Not viewing the investment as it currently is.
Many property investors are in the unfortunate circumstance that the property has gone down in value since it was purchased.
When comparing purchase price to current value many owners determine that the investment is not performing as they had hoped and decide to move their money elsewhere.
However, what they fail to do is reassess the investment at the current value. If they were to sell and get their capital out, where would they move their money? At the current value is the rental yield good? What is the prospect going forward on this investment?
You can ask any questions about this article or Czech property in general, by contacting us at: info@czechpoint101.com.
If you liked this article you would probably also be interested in:
- OLD vs. NEW flat – What is the Better Investment? (in Czech Republic)
- 5 Vitals to Execute a Maximum Value Resale in Czech Republic
- To Invest or Not to Invest in Property? (in Czech Republic) That is the Question…
- Property Purchase Negotiation in Czech Republic – 4 Critical Points
- How to pick a company/legal team to represent me in a Czech Republic real estate purchase?
2 Comments »
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I think everyone should know avoid These Costly Czech Republic property investment mistakes for their own assist. Thanks mate.
FelixInvestments LLC
Thanks Mike and I hope so also.