As with any investment, putting your money into real estate is a risk. However, there are potential hazards that are readily identifiable and should be avoided. Whether you’ve spent decades funneling millions into the real estate market, or you’re about to make your first investment property purchase, learning from the practices of other will help you find financial success. Not all risks or mistakes can be avoided, but these seven are ones to sidestep.
Lack of Planning
You will not find consistent success in the real estate market without an investment plan. Before you dive into investment in general, or a specific deal, educate yourself of the market. Explore your investment options and learn the warning signs of a bad deal. Which investment style best fits your goals?
Quick flip: If your goal is to purchase or acquire homes, perform upgrades and make a profit with (ideally) a quick sale, flipping property may help meet your goals.
Steady cash flow: If you want to secure a steady cash flow and maintain the properties you purchase, developing rental properties can help build a solid income each month.
Determining which type of investment option is more in line with your goals will help you create a secure financial plan, one that points toward your end goal.
Lack Of Research
Do your due diligence on any property or owner before entering into a real estate investment deal. A lawyer may be needed to help with some of the leg work. You’ll want to research any history of damage, possible liens, and current neighborhood market. Don’t make a real estate purchase on a whim. Determine if the investment falls in line with your property portfolio and what’s at stake if the deal dies.
Risky Financing
A bad financing situation doesn’t just create a risky real estate investment deal; it could potentially eliminate your future as an investor all together. Bad financing deals regularly involve one of these elements:
Adjustable interest rate
Balloon payment
High interest rate
High monthly payment
Personal recourse
Make sure the value of any investment outweighs the risk. Avoid any situation that makes it possible for lender to encroach upon your assets to cover for lost funds on a deal.
Undesirable Location
When it comes to real estate investment, truer words have never been spoken: Location, Location, Location. Where the property is located can easily be the non-negotiable factor that turns a house hunter into a missed opportunity. Research the area’s real estate market to determine if it’s an up-and-coming area before making a purchase.
Misjudging Resale Value
Being able to accurately judge the resale value of a property comes with experience in the investing market. It’s important to understand your buyer’s tendencies to gage the appropriate asking price for resale or rent.
Your investment property search should fit a small target area.
Zillow, MLS listings, or the local tax office can help in estimating area home values.
Work with a real estate agent who knows the area to get a feel for comparables.
Take valuation courses or read up on the best tactics to keep your skills sharp.
Underestimating Repair Costs
While it’s normal to underestimate the cost of a repair project now and then, you want to avoid the massive over-budget projects that can ultimately lead to you losing the property or working hard enough to just break even on your investment. Work with a local contractor for a trustworthy estimate.
Hiring The Wrong Contractors
Some of your real estate investment deal will depend on the work of a contractor who offers quality craftsmanship, meets deadlines, and offers fair pricing. Avoid wasting time and money on specialists who can’t offer the work needed to enhance the home:
Read online reviews
Check licensing and insurance
Read Better Business Bureau grade
The inherit risks that come with real estate investment don’t have to create a negative experience. Educate yourself, know your investment style, and thoroughly research contractors and potential deals. All of your real estate deals won’t be perfect, but you can avoid common costly mistakes by avoiding these seven investment blunders.
