10 Most Common Mistakes Investors Make in Emerging Markets

Now, all of the investment gurus out there will tell you all about the different ways they make money in real estate. However, many of those same gurus fail to accurately tell you how to avoid losing money in real estate. ProLescu Capital aims to solve that.

At ProLescu, we desire to collect the goldmines while avoiding the landmines. I want to share with you how we do just that. The key is to avoid falling victim to these 10 most common (and the most biggest) mistakes that tend to come about when folks invest in emerging markets.

(1) Don't assume any investment is a good investment. As David Lindahl once said "A rising tide may lift all boats, but some boats are shipwrecks that even the highest tide can't float" (Lindahl, 2007). This means that while yes, it can be very lucrative to invest in an emerging market, that doesn't mean that every deal that comes out of an emerging market should be acted on. You want to ensure that you are not blinded simply because the market as a whole is projected to grow and expand.

(2) Investing in an area that doesn't have enough people to sustain the job growth. While one of the keys to an emerging market is population growth. You want to be sure that said growth runs parallel to an increase in demand. You want to ensure that absorption rates are going up because this means that vacant units are being filled indicating that there is indeed demand in that market.

(3) Starting the game in the 4th Quarter. Very much like the stock market, when everyone begins to invest in one specific very popular market it is a sign to get out not to sub in. Don't be the person that enters the market way too late because you will not make any significant gains. While you may think you are still investing in an emerging market, in reality, that market stopped being "emergent" a long time ago.

(4) Failing to inspect EVERY unit. In this case, the old adage is wrong and best believe that WHAT YOU DON'T KNOW, CAN (AND WILL) INDEED HURT YOU! Some people will simply take a survey of the property at face value. While it may save you time, it is not wise. Doing due diligence on a property is the only chance you have at being compensated if something is wrong with the property, things that the owner didn't disclose, and things you didn't know existed. So bottom line up front, go in every unit, yes it costs more and takes more time, but you will pay more (in losses and time) if you fail to do this simple step!

(5) Environmental overlook. Be sure your inspection team tests the soil for contaminants, scour the building for mold and other similar things. This will save you immensely as you will avoid massive headaches and costs that comes with remedying these things. If the seller refuses to eat the costs and repairs, or the issues don't have a guaranteed fix -- then walk away!

(6) Overpaying for a property. This is where "comparables" come into play. Compare properties with similarities of your desired property to see what investors are willing to pay for your type of property, in that current market, at that current time. You can get that kind of information from a local commercial broker.

(7) Failure to diversify. Yes, when you are starting out you want to focus on one market for research and deal maturation. However, you don't want to get tunnel vision. Having all your eggs in one basket, is always a recipe for disaster regardless of the investment vehicle you choose to use. Balance learning a market with steady growth into others so you can effectively maximize your returns and make your money work for you!

(8) Ignoring excess supply. Remember, you want to ensure that demand is following job growth and that your absorption rates are increasing. Last thing you want to do is remain in an emerging market that flames out and remains stagnant for years to come. Which leads us to our next common mistake.

(9) Selling too late. Don't be the emotional or nostalgic investor that doesn't want to face the fact that the writing is on the wall. By that point, they will be fewer buyers because the smart investors have already sold off their properties. Move your profits into another emerging market.

(10) Excess Taxes. Pay Uncle Sam what he is owed. Nothing more, nothing less. Working with a great tax accountant can help you save a huge bundle of cash come tax season. Getting a tax professional or real estate attorney that is familiar with 1031 Tax-Deferred Exchange is even more powerful! 1031 tax exchanges will allow you to harness potential millions in profits!  A great real estate attorney compounded with a 1031 exchange will enable you to make more money and keep more of that money—and that my friends, just can’t be beat!

I'm excited to work alongside you as you embark on your journey to wealth creation! Stay ahead with valuable insights by subscribing to our quarterly newsletter. If you're interested in partnering with us on future investment opportunities, simply reach out via the 'Contact Us' form on our website. Let’s build success together!

References

Lindahl, D. (2007). Emerging Real Estate Markets: How to Find and Profit From Up-and-Coming Areas. Wiley.