What’s Stopping You from Making Money in Real Estate
Real estate investing is one of the best ways to make money and guarantee a stable rental income. However, many think that making money in real estate is simple and straightforward, while, in reality, it’s not a walk in the park. Real estate investors sometimes make mistakes that drastically affect their cash flow and rate of return on investment. Such mistakes stop them from making money in real estate. Below, we list five of these mistakes to help you improve yourself as a real estate investor and boost your rental income.
Not Making Money in Real Estate — Reason #1: Investing in Bad Locations
When it comes to real estate investing, all experts agree that the location of the investment property is the #1 factor for the success of your real estate investment. In fact, choosing the right location is so crucial that many real estate professionals will tell you that the three most important factors in real estate investing are: location, location, location!
This holds true for many reasons. First, location determines the supply and demand. Ideally, the best locations are those with reasonable supply and high demand. Thus, a reason for not making money in real estate is investing in a location that has too many available investment properties for rent or few tenants. Positive cash flow and rate of return on investment suffer in areas with a decreasing population or which renters are leaving.
Second, location determines appreciation. Some locations appreciate more over time — these are the locations a property investor should aim to invest in to ensure making money in real estate in the long term. Low appreciation means negative return on investment when the property investor sells the income property.
Furthermore, the supply, the demand, and appreciation determine how much rental income you can charge tenants for the investment property and how much running costs will be. This, in turn, determines whether you’re going to generate positive cash flow or a negative one. Remember, as a real estate investor, never settle for an income property which generates negative cash flow (even in the short run) as you will be losing instead of making money in real estate.
Not Making Money in Real Estate — Reason #2: Lack of Strategy
Real estate investing isn’t something you can learn overnight, nor a job where you are told exactly what to do. It takes continuous research and lots of experience to become successful and make money in real estate. Since the housing market is unpredictable, those who follow a strategy have higher chances of making money in real estate.
Having a strategy helps in planning actions to take in order to achieve your professional and financial goals. It will also help you determine your rental income, the rate of return, expenses, and any payments you have. In addition, a successful property investor also prepares for the unknown and sets an exit strategy to not be caught off guard if things go wrong.
The housing market only benefits those who are prepared! Therefore, the best thing to do is protect yourself and the income property by having a plan B. If you’re not making money in real estate, it’s time to sit down and start writing out a plan!
Not Making Money in Real Estate — Reason #3: Miscalculating the Numbers
Another reason why some real estate investors struggle with making money in real estate is that they face difficulties when calculating their numbers. They end up either spending too much on an income property or spending too little on their investment properties. Either way, they find themselves losing money instead of making money in real estate. Let us take a look at both scenarios.
Not Making Money in Real Estate: Spending Too Much
When real estate investors find an income property that meets their needs, they tend to overbid on the investment property. This is one of the biggest mistakes that causes negative cash flow and a low rate of return, thus leading to losing instead of making money in real estate. Paying too much means taking on too much debt and creating higher payments. This leaves the property investor with no gain in profit.
In addition, although maintaining investment properties is a must, it doesn’t mean real estate investors have to pay too much for repairs and call a professional repair company for every damage. To maintain an income property while still making money in real estate, the best thing to do is to find and develop relationships with contractors that will work with you and not charge too much. They can be hard to find, but they are out there!
Not Making Money in Real Estate: Spending Too Little
Solving the previously mentioned mistake does not mean cutting down on maintenance. Making money in real estate needs a lot of effort, and investment properties have to be maintained in order to keep increasing positive cash flow. If you don’t regularly conduct repairs and take care of tenants’ needs, they will most likely move out, meaning you’ll end up with a vacancy. In addition, an non-maintained income property is less likely to attract desirable tenants. Remember, every day a property remains vacant is another day in which you’re losing money.
To avoid both scenarios, a property investor needs to search the housing market and understand the worth of investment properties. Use Mashvisor’s investment property calculator to accurately calculate your expenses and rental income from the income property so you know exactly how much you should pay.
Not Making Money in Real Estate — Reason #4: Lack of Knowledge of the Real Estate Investing Market
One of the main reasons some real estate investors fail in making money in real estate is due to their lack of knowledge of the housing market and its needs. As previously stated, the housing market is unpredictable and constantly changing. Before investing in an income property, real estate investors have to conduct a thorough real estate market analysis in addition to an investment property analysis. This ensures finding the best and most profitable investment properties in the best locations!
Not only that, but when real estate investors are knowledgeable about the housing market, they become familiar with rent rates in their location, which will further help them determine how much rent they can charge for the income property. Setting an appropriate rent prevents tenant turnover (which is a positive cash flow killer).
Not conducting an investment property analysis prior to buying an investment property might leave you with an income property which causes losing money rather than making money in real estate. Investment properties should generate positive cash flow from day one; otherwise, don’t even think about buying them.
Not Making Money in Real Estate — Reason #5: Not Asking for Help or Advice
Many real estate investors enter the housing market thinking they know everything about making money in real estate and don’t need help from anyone to succeed. This actually leads to failure! A property investor must take advantage of any help that comes his/her way and learn from real estate investors’ experiences. Real estate investors who don’t consult professionals and experts (such as real estate agents and brokers) and ask for their advice before investing in an income property will find themselves broke in the future.
Making Money in Real Estate: Conclusion
Many people enter the real estate investing market for the many benefits a rental income rewards them with. However, real estate investing is not easy; it takes time and effort to start making money in real estate. Every property investor faces ups and downs. To guarantee success, just avoid the above mistakes to keep making money in real estate.
Make sure to check Mashvisor’s blog section daily for up-to-date information, guides, and tips on making money in real estate and succeeding in the housing market, or sign up to receive our blogs as soon as they are published! Moreover, start your trial to access Mashvisor’s investment property calculator to find the best investment properties with positive cash flow and high rate of return in the best location in the US housing market.
Originally published at www.mashvisor.com on February 4, 2018.