Real estate is the most consistent builder of wealth on the planet. Those that invest in it tend to do better with more reliability than those that invest in other asset classes like stocks or currencies.
Many people that hear about the promises real estate offers try to jump headfirst into their first property investments. As they do that, most make costly mistakes that, at best, will set them back, and at worst, will bankrupt them.
What are those real estate investing errors, and how can you avoid them? If you’re asking yourself that question, keep reading.
Below, our team breaks down investing flubs you should watch out for so you can find success buying real estate and turning massive profits from your efforts.
1. Not Considering Vacancy
Imagine you’ve gone over how much you’re going to pay for a piece of property and what you’ll rent it out for. Per your calculations, so long as your tenant pays their rent, you’ll turn a 50% profit vs. your expenses each month.
But what if your tenant doesn’t pay their rent? What if you have to go through a 4-month long eviction process and don’t collect any rent at all during that period? What if your unit sits empty for months because the rental market goes soft?
All of those possibilities fold into an expense savvy investors factor into their valuations. That expense is called “vacancy.”
What percentage of your monthly expenses you should allocate to vacancy will depend on your local market. Do your research and always sock away a little each month to deal with that flavor of adversity.
2. Focusing too Much on Doing a Deal
It can be exciting to do your first real estate deal. After all, completing a real estate deal means bragging rights and should put you on the path to earning passive income each month, right? Well… So long as the deal you do is good.
In the real estate market, there are no shortage of deals. The deals that make sense to take, however, are in shorter supply and require diligence to find and close.
Be patient and never feel pressured to close on a property. If you rush into the wrong deal, you could find yourself stuck with a non-producing asset that’s slowly draining your savings.
3. Failing to Capitalize on Value Boosters
Let’s say you pay $300,000 for a 4 bedroom house in Florida. If that house has a sunroom or an attached garage, converting those spaces into an additional bedroom could quickly boost your asset’s value by 25K+ depending on your market.
These low-cost, high return property modifications are things that savvy investors always look for when they’re property shopping, and you should do the same.
Having a good contractor on your team that can estimate conversion costs of spaces into additional bedrooms/baths is invaluable to you sourcing great boosting opportunities.
4. Not Partnering With Experienced Investors
There are a lot of moving pieces when it comes to closing various types of property deals. You’ll have to find lenders, an agent, hire contractors, deal with evaluators, perhaps hire a real estate lawyer, and more.
While there is a breadth of information on how to navigate all of that online, our advice is to team up with an investor that’s gone through the process before so you can learn for them. That might mean partnering on a deal and splitting the cash requirements for the acquisition of a property.
Even if going half and half on a deal isn’t your ideal situation, believe us when we say that there is serious value in having an experienced investor in your corner, at least for your first venture.
5. Not Understanding the Value of Careful Team Building
Successful investors are successful because they have great people helping them find and close deals. Real estate investing teams usually consist of an investor, an agent, a mortgage broker/lender, and a contractor.
From there, at the advice of that core group, you may get directed to invest additional resources via other key squad members like legal council, property managers, etc.
When it comes to your core team, the competency and drive of each member will directly impact your success. So hop on forums, read reviews, and try and source the absolute best people. You won’t regret the time you put into vetting your squad rigorously.
6. Neglecting to Shop for the Right Financing
How you finance your real estate deals will have a huge impact on your monthly mortgage payments. A 2% loan vs. a 4% loan, for example, could change how much comes out of your pocket each month by thousands of dollars, depending on how expensive your property’s purchase price is.
Therein lies the value of being scrupulous when it comes to comparing offers from lenders.
When you find the right lender and they walk you through the particulars of your loan, make sure that any information you receive from them is sent to you in writing so you can scrub your arrangement closely. If you can have a lawyer look over your lending arrangement, do it.
We can’t stress enough that getting tied up in a bad loan is among the worst real estate investing errors one can make and one that’ll prove to be very difficult to remedy.
Avoiding Real Estate Investing Errors Is Often As Easy As Staying Aware of Them
Awareness is power when it comes to avoiding real estate investing errors. The errors we’ve just put on your radar are among the top ones to watch out for, so commit them to memory and proceed with your next deal confidently.
Do you need more guidance in buying real estate, assessing your local housing market, or related topics? If you do, explore additional content on our blog.