It is impossible to call yourself a real estate investor if you have not made a mistake or two along the way. Sadly, most people don’t even realize the mistakes they made until after several years. If you bought a home and kept it as your primary residence for 30 years, you might not care about mistakes.If not, you will come to know about your investing mistakes sooner or later. The role of research and due diligence is of utmost importance in any real estate transaction. It is important to know your mistakes early and avoid those mistakes in the future.
It might sound a bit odd to new investors, but impulse investing is indeed a common mistake. Once you’ve made your decision on what kind of property you’re looking for as well as the areas you’re most interested in, budget enough time to not only do your research, but to do it two or three times. Finding a deal which requires immediate action isn’t a rare situation for investors, but when you fail to achieve the required research it can turn into an investor’s nightmare. No matter how good the deal, take your time and think it through. Deals that are too good to be true often have hidden problems than can ruin your margins.
Treating Optimism and Potential as Reality
Long gone are the days of what we might “investing on easy street.” As the market continues to change and force investors to adapt, there are still many who confuse their positive mindset with a factual reality and the mistake can turn into big trouble for them. Keep your momentum and positive mindset, but always examine investments cautiously with the worse case scenario first in your mind. Very few would be upset with earning a bigger ROI because they were conservative with their numbers; but virtually everyone would be disappointed to earn a lower ROI because they were too optimistic.
Buying Real Estate Without an Exit Plan
Investors know the importance of understanding the current real estate market, knowing the direction of the current trends, yet a very common and costly mistake is not knowing your exit plan from an investment. For many investors, buying properties in need of rehab relies on the ability to sell the property afterwards. This would be an exit plan, nut what happens if the property doesn’t sell, or problems prevent the sale from happening in a timely manner? Having your capital tied in a single investment could not only potentially kill your profit, but prevent you from being able to purchase other properties that might be available.
Location of Your Real Estate
It’s not only real estate investors that should understand the important of location. It’s what drives the real estate market and failing to research and understand the neighborhood and location of your investments can often be the death touch on some investments. Learning how to not only assess the property but also the location is what can keep investors further in the green instead of going into the red.
Potential for Converting Your Real Estate into a Rental Property
If your spouse does not work or your job is a temporary one, make sure that there is a demand for rentals in your location. In case of an emergency, you can convert your property into a rental instead of going through a foreclosure. You can either act as a landlord, or you can fire a property management company. Many homeowners have saved their distressed homes from foreclosures by becoming accidental landlords.
The Renovation Trap
If you decide to invest in a property that either needs improvement or would benefit from some updates or upgrades, know how to estimate properly. This is especially true for beginners who have not yet gained the experience of rehabbing an older property. As the real estate market continues to improve across the country, finding great properties for flipping is increasingly harder. When and if you do choose to do so, know the metrics and ensure your estimates are conservative, so you don’t leave the deal with a loss instead of a profit.
Most people don’t learn from other people’s mistake, they often have to learn it personally, but hopefully these are some mistakes you can save yourself from making.