Buying rental properties and choosing the best real estate investments is not an easy task, especially for beginner real estate investors looking for a way in this competitive and cut throat industry. The formula to make money in real estate investing is much easier said than done: find a positive cash flow property in a profitable real estate market, yielding high rental income and long-term real estate appreciation.
Without proper research and due diligence, real estate investors will find it very hard to compete with the big dogs and make money in real estate investing. But fret not! We give you a heads up on common real estate challenges and how best to avoid them or, better yet, mitigate them to grow your returns and minimize your expenses.
Related: What Should You Look at in an Investment Property for Sale?
7 Major Real Estate Challenges Investors Face When Buying Rental Properties
1. Limiting yourself to a specific housing market
Looking for a real estate market to invest in does not have to be within the vicinity of your own home housing market. You might settle to invest in your home market because it is easy and convenient to manage, but it may not be a good idea for the bottom line. If you are currently living in New York, you will find it very challenging and very expensive to buy rental property for big profit and long-term yields. Los Angeles is also a similar case.
Do not limit your real estate investment opportunities, think outside the box, and tap into the best profitable investments in the best housing markets, irrespective of your current home location. Long story short, the most successful real estate investors have the right forethought to break free from conventional real estate investing and maximize their profit quota in return.
2. Overestimating or underestimating repair and renovation
Deciding on worthy improvements is a key to a successful deal and keeping your expenses in check. Don’t overdo it because it will grow your expenses and burn a hole in your pocket. Underdoing will always deter tenants looking for renting in the long term.
The best way to go about managing and buying rental properties is: hiring the right real estate professionals to assess and give their input on what is worthy renovating and fixing, as well as comparing your rental property to other real estate properties in the same neighborhood. You want to stay competitive in order to make money and maintain high occupancy throughout the year.
3. Not understanding how debt works
The best way to avoid debt mishaps and defaulting is to crunch the numbers before buying a rental property to guarantee your ROI will reap positive cash flow returns and cover your expenses, including the mortgage payments. Taking out a loan to finance real estate has many benefits, including having the leverage to buy more real estate properties. But one thing is certain: you need to know what you are getting yourself into before you lock in on a mortgage plan for buying rental properties.
4. Thinking that real estate investing is a one-man show
No need to explain here! Successful real estate investors proactively manage their real estate investments and have the right team of real estate professionals to build and grow their business. Buying rental properties requires the right financial and human resources.
Related: Is Residential Real Estate Investing the Best Way to Make Money in Real Estate?
5. Not saving for repairs and maintenance
This is a big real estate challenge many beginner investors do not pay attention to. Your rental property has a lifespan, and it must be kept and maintained to reap good returns in the long term. With this said, make sure you have realistic expectations regarding your potential expenses and maintenance costs. Not only that, it is also highly recommended to save at least 2% of the value of the rental property into a savings account annually for covering any expected and unexpected costs.
6. Discounting the importance of learning and conducting real estate market analysis
Beginner real estate investors must focus on learning, learning, and more learning when buying rental properties. Without having the right background knowledge, it will not suffice to make smart decisions in real estate investing.
To reap strong yields and capitalize on profitable rental properties, do not neglect the need to perform the right real estate market analysis as well as investment property analysis. You want to guarantee positive cash flow returns before you lock in the deal on a rental property. Mashvisor’s investment property calculator estimates your net ROI in an instant, so you don’t have to worry about any manual calculations.
7. Not keeping up with the real estate market fluctuations
Buying rental properties is subject to the fluctuations and on going changes in the real estate market. Without understanding market trends and fluctuations, beginner real estate investors will not be able to adapt and align their real estate strategy for profit. Buying rental properties is always subject to the real estate market conditions and whether or not it is the right time to buy or sell real estate.
How to Be Profitable in Buying Rental Properties and Maximize Your Returns
✔ Make a business plan, including short- and long-term goals.
✔ Choose a real estate investment strategy aligned with your business goals and the current housing market conditions.
✔ Capitalize on a location suitable for real estate investing and a good neighborhood with positive economic indicators, i.e., high employment growth.
✔ Develop good people skills.
✔ Do not discount the importance of real estate education and acquire as much real estate knowledge as possible.
✔ Remember that real estate investing is a business and, as a result, its success depends on the people running it.
✔ Know that a real estate investment network provides support and creates opportunities for beginner real estate investors as well as experienced real estate investors.
✔ Seek advice from a real estate expert or a real estate mentor.
Related: Real Estate Investing Terminology: Investment Property Calculator
Conclusion
Buying rental properties and delving into the real estate world is a safe and lucrative investment to say the least. With proper due diligence and hard work, almost anyone can make money and succeed in real estate investing. The hardest part is the beginning, so if you power through the initial stages and absorb as much knowledge and education in the early stages as possible, you will be on the path to success and reap profitable rental properties in due time.
Leave us your comments below on other real estate challenges you may have experienced. And make sure to subscribe to Mashvisor blog for more real estate insight and real time advice.