Don’t Make These 15 Real Estate Mistakes
Real Estate is a complicated business. For the ill-prepared novice, it can be treacherous and financially disastrous. That said, there is hope for those of us who wish to learn the ins and outs, and snag a piece of the financial pie. For those who persevere, real estate can be one of the most profitable games in business.
A comprehensive discussion on successful real estate investing isn’t really feasible in this format, but to assist you in your real estate career, we can get you started with a list of pitfalls to avoid that might otherwise prove fatal. Here’s our list of 15 of the worst real estate investing mistakes that a beginner can make:
1. Neglecting to Keep Records
Flipping homes has been a popular hobby in recent years as investors learn more about what it takes to buy a remodel project and sell for profit. Where many investors go wrong is in neglecting to keep records of every part of the process; the cost of each renovation, receipts and warranties, owner’s manuals, and tax paperwork are all things that necessitate preservation and record keeping. For those who plan on renting out a flipped house, it’s especially crucial to keep documentation of the home’s maintenance schedule and inventory to protect against damage.
2. Not Knowing the Average Days on the Market
Keeping track of average market time is the key to determining if the market is buyer-friendly, thus determining if a property will bring a profit. Normal levels may indicate a poor market, while levels that are well beyond normal mean it’s a great time for investors to buy.
3. Not Planning For An Exit
Before you buying any property you should have a clear vision and detailed plans to prevent wasting time and money. Plans are crucial, but as the poet said, “The best-laid plans of mice and men often go awry.” Be sure to have an exit strategy in place in case things don’t go as intended. Understand your options before you get started to determine if you can afford even the worst case scenario, then always leave yourself with a way out if things go south.
4. Working With the Wrong People
Who you decide to work with, from contractors to project managers and everyone in between, will have a huge effect on your investment. A less than trustworthy business partner can end up costing you valuable time and thousands of dollars, so do your research before entering into a contract with anyone.
5. Be Patient
Patience is crucial to success in real estate investing, as every quick turnaround requires a good deal of groundwork before things actually start rolling. It may take years for your real estate investing to truly pay off overall, and for you as an investor to feel confident in the game. Those who assume that real estate investment is a get-rich-quick option usually end up disappointed.
6. Failing to Do Due Diligence
If you shirk due diligence as your invest in real estate, you’re only cheating yourself. Make sure to take all the appropriate steps in performing due diligence on your intended investment property.
7. Not Using MLS
Nearly every single home buyer finds the property they end up buying through an online search. Sites such as Trulia and Zillow are very popular, but don’t forget to use your local MLS (multiple listings service) which is specifically maintained by real estate professionals and includes the largest list of properties for sale in the area. Doing so is the difference between high visibility and going unnoticed.
8. Creating a Neighborhood Eyesore
When flipping a house, you may be tempted to get overly creative with the property and completely change the original look. Keeping the surrounding neighborhood in mind is a good practice, however, and looking to classic finishes, styles, and colors often yield better results. Avoiding creating a property that sticks out like a sore thumb on the street, and your chances of appealing to buyers will increase
9. Not Completing a Thorough Budget Before Closing
As an investor, you need to have a complete budget before you invest. Determine beforehand how much capital you can afford to commit, and allot yourself some wiggle room as things progress — you never know where surprise expenditures may come from. Try to account for all hidden costs, including utilities, insurance, and taxes.
10. Relying Completely on Professionals
They’re called professionals for a reason, but instead of turning every job over to someone else; remember that you can save a lot of money by doing much of the work yourself. Simple tasks like applying a new coat of paint, or grooming a well kept front yard can go a long way in improving the property and saving you money in the long run.
11. Attempting Major Remodeling Without Permits
If you think you can get away with major remodeling projects without securing a permit, think again. Working without required permits is illegal, risky, and could harm your whole investment if you get caught. Not only that, but buyers are likely to ask about permits before they consider buying, which could damage your credibility, and result in a redo of projects anyway.
12. Overpaying for a Property
One of the easiest ways to fail in real estate investing is to overpay for a property from the get-go. After-repair values may actually be above what the true market value is, so you can save yourself a lot of money if you understand buyer conditions, lender pre-approvals, and renegotiation post home inspection.
13. Focusing Too Heavily on a “Good Deal”
Don’t become too obsessed with the price per square foot; you might just get caught up in what seems like a great deal but is actually a lost cause. Focus instead on the location and good interior lots over discounts due to less desirable surroundings and features.
14. Failing to Understand Cash Flow
It’s best to figure out your ROI and determine if a property is worth your money and time, by understanding and analyzing the property’s cash flow before you invest. For example, if you plan to buy a property, hold it and rent it out, you’ll need plenty of cash flow to cover any maintenance needs.
15. Over-doing the Remodeling to Make Up for a Poor Investment
Don’t make the mistake of putting tons of money into a property to make it more appealing with all the newest and greatest upgrades if you already put more into the investment than you should have, to begin with. Back out early when you can, instead of putting more money into a sinking ship.