Real estate can be a lucrative investment, but it’s not something you simply purchase and let rack in the money for you without putting at least a minimal effort. Here are some pitfalls that new property owners fall into, that if given the right attention, can keep you afloat and avoid the common mistakes in real estate.
There is a lot of information on the internet, and you need to do more than read a few blogs to get an idea of what real estate entails, and how to make the most of it. Connect with others in the business to get their take on the experience, and what tips they have for a rookie going into the industry.
Not Making a Plan
You have to research in order to plan, but you’ll continue researching even as you make a plan. By planning the timeline, average expenditure, and your designated budget, you’ll have a clear idea of what to expect down the road. This is more than taking a peek at the house market and reading an article on how to work in real estate, but researching as you go.
Don’t over-invest because it’s a good deal. Be detailed in your budget, stick close to it, and be wary of any unexpected costs buried beneath a seemingly good buy. Invest in what you can afford, and be patient as your estate value grows. You won’t see a grand immediate return, but over time you can use your equity towards further investments. Be patient.
Certain projects you may be able to tackle by watching some YouTube videos and learning the process on your own, but for other projects require a little more expertise that without professional help could cost you a lot more to fix mistakes than to have invested in professional help in the first place. This is where you might look into investing in a property manager.
Overlooking Tenant Specifics
Get an idea for what type of tenants you’re hoping to attract; look at neighboring attractions such as whether any large companies are moving into the area, if there are good schools around, whether you want to place it near the freeway, if it has a fun night life—all these decisions are contingent on the type of tenants you’re looking to attract, but they also influence your choice of location.
Naturally when you find the property you’ve been looking for, you’re anxious to bid the best agreeable price. But setbacks in budget can take years to recoup, so be wise about your anxiety. Redirect that into looking at other houses with similar specs to gauge what the average value is, and stick with your budget. Unless there are attributes to your dream house that will appreciate over time, it’s wise to stay within the average value and not overpay.
Underestimating Underlying Expenses
Yard upkeep, functioning appliances (water heater, air conditioning, washer/dryer, oven, refrigerator), inspections, repairs, all contribute to underlying expenses that may cut deeper into your budget than you initially expected.
Disliking the Display
Just because the pictures were taken in bad lighting doesn’t mean you can’t transform the rooms to their full potential. Get a real photographer for your future advertising pictures. In the meantime, explore the potential property on your own to decide if it’s worth purchasing for a little lift, or if it would cost more than you anticipated to redo.
Buying Because of a Current Tenant
While it’s nice to have a good, long-standing tenant at your property, there may be some drawbacks the previous owner didn’t tell you about their late rent, or that they didn’t make enough that month to pay rent. You can pair up with an agency that will screen the tenants before you buy the home yourself, or look for a place that is already vacant.
Expecting Immediate Substantial Return
Real estate investing takes time, and property appreciates slowly, depending on your location. You’ll be earning money month-to-month, but at the start that is what you can use to invest in the upkeep, property tax, insurance cost, and repairs. The long-term ROI will come through the appreciation of your property.