How Not to Make Money by Investing

Many people think buying a property and renting it out is a good investment even when they have to top up the mortgage with their money.

Amazed, that is how I feel every time I hear someone who has an investment property having to cough up money from his or her pocket to cover the cost of owning the property. It seems some people don’t understand what an investment means and what its purpose is.

Our conversation was about how fast the month of February was ending, but we somehow ended up talking about money and owning investment property. It was then that a friend’s acquaintance mentioned having problems with one of his properties.

Apart from his tenant not paying the rent for the past four months, since renting out the property he had been paying two hundred pounds every month to cover his mortgage. His tenants also happened to be family friends so he relied on them paying the money directly into his account, not bothering to check this was happening. To make matters worse, the bank was now repossessing the property.

It doesn’t take much to see that many bad choices had been made. First off was the casual relationship, then comes forgetting to monitor cash flow and finally, not treating the investment property as a business. The sad fact from my experience is that this scenario is common.

It reminds me of property programmes where people buy property to sell for profit after refurbishing it – also known as flipping. However, majority of the people featured forget to think like a developer and business person who’s aim is to make money, not become emotional about painting the walls their favourite colour or installing an expensive kitchen just because they like it.

You might like to know what an investment means and how to make money from it. By investing, you are hoping the product you have invested in will increase in value (capital growth) and or provides you money monthly (monthly income). Owning rental property that requires paying money into it monthly is not an investment, it’s a liability – draining you. The fact that your property “might” increase in value in the future is irrelevant, as worse you should aim to break even, that is have the investment cover itself.

It is easier to make money from your investment when you treat it like a business, and by that, I mean monitoring your cash flow, knowing who your customers are, the services you provide and what the job of the business is about – making money.

As is always the case making money involves thinking and acting in a certain way; owning an investment property is a business and one that should be taken seriously if it is to make you make you money.