8 Mistakes Beginner Real Estate Investors Makes
If you’ve considered investing in real estate, you’ve probably heard what a lucrative industry it can be.
However, don’t be fooled. Investing is a tough nut to crack. And while it’s certainly possible to thrive in the real estate investment industry, not everyone finds success.
So what’s the difference between those who succeed and those who fail? Does it come down to hard work and determination? Does experience play a role? What about the health and vitality of the market? Or, is it all simply up to chance?
There are a lot of factors that may or may not play into one’s success story.
However, one thing all investors will tell you is that avoiding costly mistakes in the beginning can make a huge difference.
Let’s take a look at the top 8 mistakes beginning real estate investors often make:
Mistake #1: Planning On the Fly
You found a house that’s a good deal, so you should probably jump on the deal and figure out the rest later, right?
Lack of planning is one of the biggest mistakes you can make as a beginning real estate investor.
Many beginning investors think they can find a property first and then try and figure out what to do with it later. This, however, is working completely backward.
First, you need to choose your investment model and then go out and find a property that fits that model.
Mistake #2: Not Researching Enough
Think about the steps you go through when you buy a new car or a new expensive appliance.
You don’t just go to the shop and pick out the first one you see. Instead, you conduct ample research and ask lots of questions to make sure you’re making the right decision.
Whether you’re a landlord, flipper, home owner, or land developer, the same thorough research process should be conducted when investing in a new home.
Here are a few questions you’ll want to ask before buying:
Why is the property up for sale?
Does the property reside in an area that possesses problems? I.e. termites, floods, or radon?
Will long-term construction be taking place in the area in the near future?
What needs replacing?
What’s new and doesn’t need replacing?
Are there any problems within the town?
What did the previous homeowner pay for the home and when did they purchase?
Asking these questions will not only make you more prepared, they’ll also show the person selling the home that you know what you’re talking about and that you should be taken seriously.
Mistake #3: Let Emotions Drive Decisions
This is a mistake that many beginning investors are guilty of.
Often times, beginners fall in love with a property and then focus on doing whatever it takes to get their hands on it.
You can’t let your emotions drive your decisions when searching for a property. Instead, you need to make an informed business decision: search for deals based on your criteria, make a list, and then narrow down that list and cherry pick only the best options.
Mistake #4: Going At It Alone
Many people are DIYers who hate the idea of handing off tasks to someone else or even seeking outside advice.
However, building a team of qualified professionals is critical to finding success in the real estate market. At the very minimum, you should have a good relationship with at least one real estate agent, home inspector, appraiser, attorney, handyman, and insurance representative.
These individuals can help alert you of any flaws in the neighborhood. Or, in the attorney’s case, they may be able to alert you of any defects in the title that may come back to haunt you.
Mistake #5: Overpaying
If you’ve already started dipping your toes in the investment process, you’re probably aware of what a time-consuming and frustrating process searching for a home can be.
Often times, first-time investors are so anxious to get their hands on a property that meets their criteria that they end up overbidding. Overbidding can snowball into a whole range of issues.
If you overbid, you could easily end up taking on too much debt and facing higher payments than you can afford. This can result in it taking years to recoup your investment.
Mistake #6: Underestimating Costs
Many first-time investors underestimate the cost of improvements need to maximize their return on investment.
In order to make sure you don’t fall into this trap, you should make a list of all the monthly-maintenance costs associated with owning a home. This list should also take into consideration any hidden costs, such as taxes, utilities, and insurance.
Once this list is compiled, you should develop it into a long-term budget.
A long-term budget will help you determine how much you can spend in the buying process, the renovation process, as well as how much wiggle-room you’ll have throughout it all.
Mistake #7: Hiring Pros for All Home Repairs
Want to know one of the quickest ways to fail as an investor?
Hire a professional to take care of every single home renovation.
Many investors think their time is too valuable to spend on repairs and then end up paying a fortune for professional services.
Therefore, it’s important to take a look at all necessary home repairs and figure out what you can on your own.
Here are a few quick and easy DIY repairs you can do to save big money:
Refresh the walls with a new coat of paint
Regularly mow the lawn and maintain the landscape to add curb appeal
Change a few prominent details in the kitchen to give it a fresh look
Regrout grungy tile and replace chipped ones
Paint the front entry a vibrant color
Update lighting fixtures
Mistake #8: Having Only One Exit Strategy
Too many first-time investors buy a property and end up stuck with it because they only have one exit strategy. For example, they think their going to buy a property and flip it quickly.
But what if it doesn’t sell? You could end up behind on payments, lost the property, and damage your credit score.
To minimize the risk of this happening, it’s essential to have multiple exit strategies.
For example, plan A could be to rehab the house and flip it, plan B could be to hold the house and rent it for awhile, and plan C could be to sell it to another investor at a below-market price.
Hopefully, your exit strategies will allow you to still make a profit.
Beginner Real Estate Investor Mistakes: Wrap Up
Many real estate gurus make investing sound simple.
News flash: it isn’t.
Many beginners who make one or more of the mistakes above end up having a terrible first-time experience. That’s why it’s always best to consult with an expert who can warn you of any red flags and potential mistakes.
Contact us today if you need help.