Here is a list of 10 real estate mistakes that all beginner investors should avoid.
Mistake #1 Not Doing the Research
Performing investment property analysis should be one of the first steps when looking into buying an investment property. Mashvisor can help you achieve this so that you can have a good idea of the ultimate rental strategy as well as the rental income, the expenses, the cash on cash return, and the cap rate.
While you may have completed basic investment property analysis and found a property you’re interested in investing in, there may be many other variables you have failed to study. Not getting the complete information about the property is one of the real estate mistakes beginners commit.
Factors such as repair estimates, after-repair value, time on market of comparables, and unique real estate laws of the area have to be considered before making the investment. You’ll also want to study the location of the property as well as you can. Don’t avoid the legwork and get to know the neighborhood and the kind of tenants in the location, any information that will help you plan for the success of your investment. Once you gather all of this information, you may even decide the property is not worth your time or money.
Mistake #2 Not Planning Out a Complete Budget
As you start out in real estate investing, you’ll probably have a budget ready to purchase an investment property. But does your budget include any and all unforeseen expenses that may pop up? There are many costly elements that you have to consider beyond price and a few repairs. The cost of taxes, insurance, utilities, maintenance, and fees you’ll have to pay while renovating should all be part of your budget plan. You’ll also have to analyze the property’s cash flow to make sure it is sufficient for your future expenses.
Related: How to Minimize Your Monthly Expenses in Real Estate Investing
Mistake #3 Not Planning Exit Strategies
You probably already have an idea of what you want to do with the investment property, whether you plan on flipping it or renting it out. But one of the real estate mistakes would be to not plan for what to do with the property if your initial ideas don’t work out. Planning an exit strategy will ensure that, if things don’t go according to Plan A, you’ll still be able to get out without much of a loss using your Plan B.
Mistake #4 Overpaying for the Investment Property
As mentioned before, if you do all of your homework on the investment property of interest to you, you’ll avoid a lot of real estate mistakes including overpaying for the property. There are many different real estate mistakes that can lead to overpaying such as if you’re overestimating the after-repair value or underestimating the cost of repairs. You can end up overpaying and losing thousands of dollars on your real estate investment.
Mistake # 5 Being Impulsive or Overly Cautious
When you start out in real estate investing, it may be tempting to just jump right in, invest in a property that looks promising, and wait for the cash to roll in. But that is far from how it works. Choosing the right investment property takes time, patience, and the accumulation of key knowledge to make good decisions.
The other end of the spectrum won’t get you very far either: being overly cautious. While you should get your hands on as much information as you can, you have to accept that you can never know it all. If you spend too much time making decisions because of your cautious nature, you’ll end up never really investing in any property.
Mistake #6 Choosing the Wrong People to Work With
Real estate mistakes can be costly, especially when they result from working with the wrong people. The wrong contractors can end up working over your budget or making poor repairs that don’t comply with certain laws and regulations. They may even end up quitting on you early, leaving you to pay any fees, while the property sits unused and unready.
This is where building a real estate investment network comes in handy. When you start out in real estate investing, you may not know too many people to refer you to the right contractors, but you can try attending your local Real Estate Investment Club (REIC) meetings. There, you can talk to more seasoned real estate investors and ask for referrals to contractors or opinions on any contractor you’re considering.
In-person interviews are a good way to follow up along with talking to former clients to hear their first-hand experiences with the contractors you wish to hire.
Mistake #7 Letting Professionals Handle All the Repairs
Being a beginner real estate investor, you may assume it’s much easier to hire professionals to handle all the repairs on your investment property. This real estate mistake will eat into your budget fast. While there are repairs you couldn’t possibly do without professionals, there are many that you can do on your own. Things like painting the walls, minor kitchen repairs, clean-up, and landscaping can all be done easily without professional help. This will save you money, and you’ll find it doesn’t require much effort and time.
Mistake #8 Trying to Remodel without Permits
For some real estate mistakes, you may not feel the consequences until you’re far down the line in the process such as remodeling without permits. As a beginner real estate investor, it may feel tedious and excessive to get permits for every remodeling job. However, without them, you open yourself up to being reported, forced to redo the projects, and paying possible fines. You will have lost time, money, and effort because you didn’t apply for the permits in the first place.
Related: Home Renovation: A Guide for Fixer-Upper Investments
Mistake #9 Over-Repairing to Compensate for Over-Paying
Properties in a certain area usually fall in a specific price range, and excessive repairs aren’t going to get your property out of that range. If you plan to execute repairs with this mindset, you’ll probably go over your budget, even if it’s been well laid out. This is why it’s important to determine beforehand if a property is worth the risk before investing.
Mistake #10 Not Learning from Your Mistakes
While there are many real estate mistakes a beginner can make, it’s repeating them that is the biggest mistake of all. Keeping detailed records of all the moves you make in any investment will make it easier when you want to go back and investigate where you went wrong and what caused your major and minor losses in profit.
Avoiding these real estate mistakes will assist you in making better decisions as a beginner real estate investor. Although many might fail upon entering real estate investing, with the right knowledge to support you, you don’t have to be one of the many.
Related: 9 Expert Tips for Real Estate Investing