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Why does buying investment properties differ from purchasing a private home, why do investors fail or losing the entire investment portfolio and what are the three simple rules to succeed?


Why do Property Investors fail?

Three Rules for Beginners in Real Estate


Starting a new adventure, the question is - how do people prepare for success and get ready for facing the property market with confidence? Obviously people read books, attend seminars and seek advice what and where to buy. But do newcomers also study the reasons why experienced investors give up or have lost their real estate investment?


I can think of several cases where property investors lost their portfolio in relationship battles or lawsuits and got it wrong just from the beginning. Even an illness and other totally unpredictable situations can steal the dream  of enjoying the fruits of owning a business or retiring as a wealthy person.



Three simple rules to succeed


Ask yourself what is the point getting the best deal in the best street at the best price if you cannot manage the risks and subsequently lose your investment?


Buying investment properties differs from purchasing a private home you want to live in. A good performing investment is something that is high in demand and short in supply. Such income producing assets and ownership must be protected accordantly by an investment structure. 


RULE #1— Get your investment structure right.


The rule of thumb is, an investor should control everything but own nothing! If sued the company or trust owns the assets and as director, shareholder and/or trustee the investor controls everything.



RULE #2— Be prepared and ready for opportunities


Being ready includes having prepared sufficient funds like cash in the bank (for deposits) and loan approvals for financing planned investments. The time consuming part of preparations is gaining knowledge not just collecting information. Knowing what to do is a different matter for taking advantage of upcoming opportunities.


Being prepared is everything to be able to execute your plan and strategies based on rule #1— investment structure(s) for asset protection, distributing income  and meeting legal obligations (record keeping, tax payments, council regulations).



RULE #3— Stick to plan and strategies


Investment strategies for high yield, capital growth or both in combination really depend on your investment goals long-term to build-up wealth or short-term to create maximum cash-flow. Negative geared investments with focus on off-setting tax is another exceptional strategy that makes sense for high income earners who can afford loss.


Regardless your strategy for income, leverage or capital gain success comes easy if you stick to your plan and investing rules.



Take risk management seriously


Risk management is for many simply asset protection by signing a risk covering insurance policy. For instance house insurance is based on sum insured for replacement cover (previously full replacement cover). That is not all.


What people often do not consider when signing a purchase and sales agreement is to lose that property as a result of a relationship dispute.  About ownership models—read here more (e.g. as Joint Tenancy). A Joint Tenancy is when two people (parties) own a property together, and each one has the right of survivorship to that property. For instance the bankruptcy court could sell that property on behalf of one party— so, I would never buy business assets as a joint tenant.


As you can see, we started investor’s homework with considerations about the investment structure (ownership in private name, partnership, company or trust). Doing it after you purchased your first investment makes you vulnerable, and moving an asset into a different ownership is costly, too. But failing to have an investment structure might end in disaster. 



In summary

Never violate these three basic rules. But one tip more, don’t expect a great marriage or relationship, when working so hard - forgetting you have one!  Balance is not only important for investments, it is about your life. Good luck.




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Klauster Blogs lead to a real person, IT professional, investor, landlord and business owner with interests in technologies, properties and trading.



His passion, making experiences available and helping people like you, comes from extensive travelling and the principles of life—how to avoid pitfalls in unfamiliar territory when investing or forming relationships.


The philosophy to treat life, partnerships and hobbies as an investment has helped people in his circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.


Come along and share your views—learning for results and confidence

Investing Rules for Beginners