Real estate can still be a good investment, if you can avoid making some common mistakes. Real estate investments can quickly turn sour if buyers don’t do their homework or have unrealistic expectations. Learn about these mistakes others have made to avoid making them yourself.
Playing it by Ear
Failure to plan is the top reason people make bad real estate investments. They want to plan as they go, rather than sitting down and doing the research ahead of time. Start by choosing your investment model, and then look for a house that fits the plan. Have a set number you will not go over, and look at multiple properties to find the right one.
Be honest with yourself about your financial position. If you are constantly struggling to make ends meet every month, how will you cover the mortgage payments while you are preparing the house to flip it? If you are investing in a rental, you must consider how you will cover the mortgage payments when the house is vacant. How much time and money are you willing to spend on maintenance and repairs for a rental? If you are planning on having a real estate agent handle this, call a few agents and find out what the fees are so you can include that in your budget. The last thing you want is to get in over your head financially.
The Get-Rich-Quick Mentality
Real estate is an investment. Like most investments, it takes time to pay off. It takes hard work, patience and dedication. You may still make a few bad choices along the way. However, you are almost guaranteed to be frustrated if you believe that the process will be fast or easy.
Failure to Plan for Failure
Things will not always go the way you expect. A house purchased as a rental may sit empty more than you expected, or the market may take a dip right before your flipped house is ready to sell. This is why an exit strategy is important. Always have backup plans so you will know what to do if the primary plan doesn’t work out. You may have bought the house to flip it, but be prepared to rent it for a while if the sale doesn’t come through in a timely manner.
This isn’t to say that you need a partner, but you should have the right professionals on your side. These professionals should include a real estate agent, appraiser, closing attorney, home inspector and lender. You should also have a team of rehab professionals you can call after you take possession of the property, including a plumber, electrician, roofer, painter and HVAC specialist. When you get in over your head, you can call them to help you.
Buying a property gives you hope for building a strong financial future, and you may be anxious to put the plan in motion. However, you still have to do your research. Learn about investment properties and how they can benefit you. Do the research ahead of time to avoid problems later.
You need to be willing to walk away if the selling price exceeds your limit. Don’t get into a bidding war at an auction and get caught up in the desire to win. Remember that you are not buying your dream home, so you should not get so attached to a property that you will pay too much. The best way to ensure profits is to make sure you do not overpay.
You can be successful as a real estate investor, but it’s important to avoid these mistakes. Falling into any of these traps will result in frustration and potentially devastating financial losses. Set yourself up for success by avoiding all of these mistakes with all of your future purchases.