Real estate investment has always been one of the most recommended investment options for investors. While it has historically created many millionaires, it requires patience and persistence for you to be regarded as an expert.
As a newbie in real estate, there are many real estate investment mistakes you can make. Sometimes you can rush into it without fully understanding all the factors involved and calculating all costs. Real estate investment isn’t all about buying property, filling it with tenants, and receiving rental income. Even seasoned investors make grave investment mistakes.
Fortunately, there are a few steps you can follow to avoid common pitfalls. Here are 5 common mistakes to avoid if you want to succeed in your real estate investment.
- Not Doing Your Due Diligence
When making other investments, such as buying a car, people tend to ask all the necessary questions to avoid being duped or simply to see the bigger picture. Surprisingly, most people overlook this stage when it comes to real estate.
Other than obvious factors, such as price and location, you should ask more questions and know more about the property. Know how much space is in the property, any zoning laws or permits required when renovating the property, and why the seller is selling. Sometimes, the house might require new roofing or an electrical system replacement.
Also, ask about the neighborhood. You should be able to know whether that area might be prone to floods, hurricanes, or any other natural calamities. Are there any government projects to be undertaken in that area? Does that area have basic amenities and facilities?
Prudent investors will also check on the market trends and value of the property for at least the last five years. This can be a huge factor in determining how soon you rent or sell your property.
- Ignoring the Numbers
When investing in real estate, you should be cautious with the numbers. Even experienced investors may make mistakes by failing to account for vital fees, such as property taxes or debt services. Don’t let your optimism blind you.
As an investor, you need to understand the feasibility of your projects and how you’re going to make money off them. Quite frankly, you’re not going to make great returns out of everything you try. Some properties might not even be that worthwhile after all, even if you make some money from them for a while.
A simple cash flow calculation will show you how much you’re going to get, not only from your rental units but also fix-and-flip projects. Know about the recurring costs, such as insurance, maintenance and repair, mortgage repayments, taxes, and any other immediate fees.
Also, consider how much your property will be worth once you’re done with the project. This will determine how much you’ll be able to sell or rent it for.
Knowing your numbers will help you know how much money you’ll need, how you’ll make a profit off the property, and when you’ll break even.
- Lacking a Plan and Goals
You need a comprehensive and detailed plan to succeed in real estate investment. Most beginner investors make the mistake of planning on the fly. Real estate investment is expensive and you don’t want to invest without a plan, no matter how good the deal looks on paper.
Without a plan, you may end up spending a lot of money on a property that will cost much more in maintenance. You might end up also being unable to rent or sell it to make a profit. Lack of a plan will have you going for properties that are high-risk and beyond your comfort level.
Real estate investment is also not a walk in the park. Your goals will keep you going even when you have a reason to give up. When you set your goals, you can stay on track.
Set long-term and short-term goals, and then come up with a strategy that helps you achieve both.
- Working with the Wrong People
If you’re getting into real estate investing for the first time, chances are that you’re still working a full-time job. In most cases, you’re going to do it alone or work with someone else.
The problem with working alone is that you might not know what you’re doing and you won’t devote a considerable amount of time to the project. This is why in most cases you’ll fail for the first time.
On the other hand, you might decide to hire someone else to do the work for you. However, if done wrongly this could be another pitfall. You could be losing a lot of money to overpaid fees, bad workers, and even fines on missed payments.
It’s always ideal to seek expert advice before you embark on your project. This way you’ll know which is the best property to buy and what’s the best price to pay for it. They might even let you know who’s the best to work with.
- Lack of Patience
Many people get into real estate with the wrong mentality that it’ll make them instant millionaires. Remember that even in other industries, it takes years of hard work, discipline, and determination to succeed. The same applies to real estate.
Real estate investment is a long-term ball game. You need to get in with a long-term mindset. While you can make handsome returns with the right strategy, it takes time and patience.
Also, real estate investment is not liquid. You might need to hold the property for a while before you cash out. However, the payoff after patience and persistence is worthwhile.