When most people begin real estate investing, they generally have the intention of investing for income, investing for capital growth or to reside in the property themselves. We know that real estate is a powerful way to increase net worth and wealth, but there are some common mistakes people make that can seriously stunt the growth of their portfolio.

The purpose of this article is to introduce you to a few rules I adhere to, that will help you avoid making some common mistakes.

Who am I to talk?

I have been a property investor for over a decade and have made my fair share of these mistakes in that time. Eventually I recognised what I was doing wrong, and formulated a simple strategy for investing that has allowed me to quit my job and live a truly fulfilling lifestyle. My passion today is helping other people achieve the same successes I have.

Most people don't know how to look for the hot spots, so they buy close to their home. They may be lucky enough to reside in a high growth area, but to invest successfully in real estate we need to make informed decisions, not cross our fingers that luck is on our side.

You will always find people who are 'experts' and willing to share their 'hot tips' for THE suburb to invest in. Do the research YOURSELF.

Buying into the wrong area can take many years (if at all) to offer you the growth needed in order to help you buy more and more properties. Without the ability to consistently add to your investment portfolio you will find yourself behind the eight ball.

I recently met a young couple who have found themselves in exactly this situation. They sought advice from someone who helped them buy into a new development. They felt comfortable with the suggestion of a new house and land package in a new area that was apparently 'set to boom at any time'.

They believed that a new property offered better depreciation and although the investment would be negatively geared, they would be compensated for that in their tax assessments each year.

They went ahead with the purchase, very excited at finally making a start on their wealth creation. However, they very quickly realised the negative geared aspect (or money out of their own pocket needed to put towards the investment) was 3 times more than the estimate they had been given.

This amount was way over budget and putting immense pressure on their personal lives. They tried to increase the rent but what they currently receive is already higher than similar properties in the area. So they decided to sell the property.

Unfortunately because the house is in a new area, the values have not yet increased. This means that by the time they factor in fees & commissions, their realistic sell price will not even cover what they currently owe.

With the right information at hand and an effective strategy in place, this situation could have easily been avoided, allowing these people to build a successful property portfolio in a short amount of time.

Along with new developments offering house and land packages, a popular entry to real estate investing is to buy 'off the plan'. The attraction of this type of property purchase, is the chance to invest at today's prices and benefit from any capital growth at the time of settlement (which can sometimes be several years away). The idea being that the property will value up much higher on completion.

Quite often however, when purchasing off the plan, or committing to the sale BEFORE the building has begun, the purchase price is fixed and offers no room for negotiation.

Part of the sales sweetener can be a rental guarantee.

The contract may state that the developer will cover the rental on the property for a certain period of time. In some cases they will even offer to manage the property for this timeframe as part of the deal.

The danger here is that you pay over the market price because the 'rental guarantee' has been factored into the purchase price.

Effectively the developer is just giving you back YOUR money.

Buying property off the plan involves a greater risk as the building does not exist at the time of sale, so no searches can be made. Quite often the quality of fixtures and fittings are compromised towards the completion of the project, which can then help to cause a lower property value.

Now I'm not saying that all 'off the plan' projects are a no-go zone, but you need to be aware of the possibilities before you sign anything. Take heed from those who have been bitten.

It is surprising how many people pay too high a price in property transactions, simply by accepting the asking price and the agents spiel.

Real Estate agents are motivated by other influences, generally their commission on the sale. They are not responsible for you getting the best deal, YOU are! Do your homework and know what price you SHOULD be paying and don't be embarrassed to negotiate a better deal.

Learn the art of negotiating.

Skillful negotiation can save you significant sums of money when buying or selling Real Estate, but few investors make the effort to learn basic negotiation techniques. Don't be embarrassed to negotiate, make it a game! It can make a huge difference to the profit you make on your investments.

The art of skillful negotiating is finding the other parties needs and showing them how to achieve them in a way where you can both benefit.

Aim for Win/Win.

There are 3 key elements of effective negotiating:

1) INFORMATION

As an educated investor you should have a better understanding of the local property market because you will have done your homework.

2) TIME

Never fall in love with a property. They are like buses. If you miss one, another will come along shortly. You are not time driven while looking for the right property. The vendor, however, has gone through the emotional trauma of putting their house on the market and is probably keen to negotiate a sale.

Determine if the vendor is time sensitive. Understanding where they are and what they want puts you in a much better position to negotiate.

3) POWER

There is always the perception that the other party holds the upper hand. This is usually not true in property negotiations. If the other party is emotionally involved and you adhere to these rules, then the power is with YOU.

Skillful negotiation requires a combination of all three of these elements, however, it is interesting that in this game, most people feel the other party has more of each than they have.

Another common area people misunderstand is the timeframe for holding property. Yes, 'flipping' has become a popular strategy for turning over a quick profit, but this can be a significantly smaller amount than if you took a long term view.

By selling the property too soon you will only benefit from any equity you have manufactured yourself through renovations or improvements you may have undertaken.

Holding onto each property for the long term will allow you to benefit from the natural capital growth as well.

Many times in the past I have sold a property for the quick profit, quite pleased with myself at the time, only to realise 5 years or so later what I would have gained had I have held onto it.

Do the sums. How many properties would you have to 'flip' to accumulate the deposit to buy another? Don't forget to factor in fees and taxes here. Just 1 very well chosen and renovated property would provide you with the equity you need in a much shorter time frame, and you don't have to offload it at all, allowing you to gain from the growth again and again.

So when is the best time to sell?

In my book, NEVER!

It is almost impossible to create wealth without finance. The average person does not have money lying idle to cover the costs of investing. You need to leverage using other peoples money. Now if you don't have that sort of money to spare, it's quite likely your friends and family don't either.

So your only choices are banks and lending institutions.

But how you structure your finance has a huge impact on your pocket and your portfolio growth.

These days there are literally hundreds of finance companies or lenders willing to give you money. Choosing the right one can be daunting. What you need to realise is that they don't consider the best finance setup for you because they are a Retail Business. They buy money at wholesale prices and sell it at retail prices. They WANT to lend you money because that is how they make a PROFIT.

Today, even if you have a bad credit history or no documentation at all, such as self employed, one of these companies WILL lend money to you.

For me personally, the easiest way has been to use a finance broker, who themselves is an INVESTOR (this applies to anyone you seek financial advice from). An investor can offer you valid advice based on their own personal experiences. Once you build a professional relatonship with such a person, you will find future investments become a piece of cake.

As with any form of investment, if you don't know what you are doing, you will be taking risks. Educate yourself. With the right information at hand and an effective strategy in place, you can begin to build a successful property portfolio right now.