Real estate is a tangible asset with typically very low boundaries. People from all walks of life and income levels have become successful in building their own empires. There are many success stories out there coupled with the possibility of making considerable significant returns. That alone makes the whole investment idea worth taking seriously.
Investors looking to try their hand in real estate should do their fair share of research and diligence before actually taking the plunge. This way they can help protect themselves from making too many rookie mistakes.
Access to a wide variety of resources is easily available nowadays. Real estate newbies can avoid common mistakes by learning from the experiences of other investors, making wiser decisions from the get go. There is no doubt that experience is perhaps the best way to learn, but you can make use of a number of resources to lessen the blunders. Here are 5 of the biggest real estate mistakes to avoid.
- Confining yourself to a specific market. When it comes to making the selection of where to invest, you might feel that your home market is the best place to start because it is familiar. However, this doesn’t necessarily mean that it is the best choice. Opportunity has no bounds, and you must always keep this in mind as you search for your next investment. There are many other markets across the country that manifest the same economic stability and the same increasing housing demands and returns as where you’re familiar with, and there is no reason to eliminate these markets from your selection. The advances in technology have played a very critical role in allowing investors to conduct all the necessary research and enter markets across the nation in their search for better investment opportunities. There are now a growing number of real estate professionals that provide information to investors that can help clarify opportunities outside of their home markets, which in turn can help the new investor feel secure about his decisions
- Renovating too much or too little. Real estate investors should plan to renovate depending on the local market condition. Renovations can vary from one neighborhood to another, even in the same city. Investors might find themselves in a challenging situation if they renovate beyond market expectations. For instance, if all homes in a given area have countertops made of tile, adding granite countertops may not appeal to the typical renter or owner in that neighborhood. This in turn may limit the return on investment by having only a not-so significant impact on the rental rate or sale price. Avoid over or under renovating by talking to your team of local real estate professionals. They are experts on the matter and will be able to help you decide on which are worthwhile improvements to be made. Tour other houses in the neighborhood and you can also check out photos on the internet to scope out the local competition. Do your due diligence before initiating any renovation projects as this may help your chances of increasing returns and keep you from wasting time and money on the wrong renovations.
- Lacking the understanding of how debt works. There are typically 2 reasons why real estate investor use debt–to increase their buying power and to improve returns. Both objectives offer leverage and are rather attractive, but any form of debt does not come without risks that every investor should be wary of. A novice investor may take on a hefty loan that charges a higher interest rate than the investment is likely to yield. This will eventually result to a negative cash flow, forcing the investor to use money out-of-pocket to make up for this shortfall. You can avoid this scenario by computing the numbers of the deal and know for sure that the property will generate enough earnings to cover the loan amount. It’s very important to have a full grasp of the costs and expenses that go into the operation and maintenance of the property.
- Not getting outside help. Many real estate investors handle their first few deals as a part-time project on top of their primary profession, and attempt to handle the business without any help. This strategy is almost as sure to result in failure, given the lack of time to focus coupled with the lack of experience in this form of investment. Embarking on a real estate investment without the attention it requires or the proper resources can put the best deal in jeopardy. Before getting started, make sure to have a clear scope of work, a full understanding of what a property requires and someone to help complete each task. Assemble the right team to help you keep your investment goals on point. Make use of the real estate experts you have at your disposal to give you the kind of assistance and support you need.
- Not having realistic expectations regarding repairs and maintenance. It is a common mistake among real estate investors to not have enough saved up to cover for maintenance costs and capital expenditures. Usually the more experienced investors would set aside about 2% of the value of the property on an annual basis for these costs.
When taking on a new project, the best place to start is always with preparation. Knowing the most common mistakes and having a coherent plan to avoid them can help investors easily find success in the real estate industry.
No matter your reasons for hopping on the real estate business, investors who do their due diligence are more likely to succeed. No deal is perfect, and everyone is bound to make a mistake or two in the process. But those who learn from these errors and make the effort to avoid making them again put themselves in a better position and are likely to succeed in future deals.