5 Common Mistakes to Avoid When Investing in Real Estate

Problems to Avoid When You Invest in Real Estate

Investing in real estate is not as easy as it may seem. Specifically, if you are just starting from scratch, common roadblocks can slow you down. As you get into real estate investing, it is important to know that setbacks can happen. You may lose money in some instances.

When that happens, it’s important to remain consistent with what you are doing and learn everything from experience.

Additionally, by researching and implementing advice from other professional home buyers, you can steer clear of some mistakes that are commonly made. If you are ready to dive into the world of real estate and start buying properties, review these 5 commonly made mistakes.

Having No Concrete Plan

Investing in real estate means you need a plan of action from the start. It’s a reality that investing is not cheap. If you start making decisions without a concrete plan, it could cost you large amounts of money. Owning real estate comes with several expenses that you’ll need to ensure that you can cover based on the rental income that the property generates.

What is your end goal for buying this house or piece of land? If you plan to renovate the property and then sell it, you’ll need to make sure that you have a thorough scope of work for the renovation project. This allows you to see all of the upcoming expenses laid out.

Are the expenses higher than you expected? What type of financing will you be using? Does an FHA 203k loan make sense in your circumstances? Let the numbers help guide you when deciding if the investment is actually a good idea or not. Proper preparation can save you massive headaches down the road when buying property.

Not Understanding the Local Market

Many people jump into real estate, hoping to add value to a property through lengthy renovations. Are you planning on adding a room to try turning the house from a 2 bedroom into a 3 bedroom? You’ll need to ensure that you have the proper permits to complete specific renovations, depending on your local market and city.

Additionally, there may be certain zoning guidelines that you will be required to follow when doing larger renovations. Don’t get stopped before you even get started! Make sure that you fully understand your local market and the guidelines surrounding real estate.

Real estate values are another component that you must be fully aware of. You shouldn’t start a renovation project unless you know how much you plan to resell the property for. To do that, you need to understand the local real estate values in your market. This will help you decide which project is a good investment and which one you could potentially lose money on.

By failing to do your homework on the local market values, you could easily find yourself in way over your head.

Hiring Bad Contractors

Real estate investors are constantly fighting the battle of trying to find good contractors to work with. Even if you have properly planned your renovation project and the numbers all lineup, you can still run into issues by hiring a bad contractor.

A good place to start is referrals from other real estate investors. They may not always be willing to share their best contractors, but it never hurts to ask. You can join real estate groups and forums to begin networking with other home buyers and find a good contractor contact.

Many contractors know how to navigate agreements that they sign to their advantage. For example, if you don’t have particular clauses in the contract or agreement that protect you when work doesn’t get completed properly, they could run away with your money.

Make sure that your contract is thorough and full-proof. Even if you hire the right contractor, you must ensure that your agreement protects you throughout the entirety of the renovation.

Wrong Frame of Mind

A misconception exists where many investors believe they will gain wealth quickly. However, this is typically not the case in regards to real estate investing. Real estate is usually a long-term game. Even if you plan to flip a house with a quick renovation, the process can still take weeks or months to fully complete.

Houses are not as liquid as other investment vehicles, like stocks. It can take time to sell a house that you have fixed up. Is your property sitting on the market for months without selling? There’s a chance that it is overpriced and needs to be priced down in order to sell it.

Don’t get frustrated if it takes you longer than expected to make money investing in real estate. Remember your end goal, and keep your frame of mind pointed in the right direction.

Multiple Exit Strategies

There are many different investing strategies when it comes to buying real estate. It is important to keep all of these in mind when buying houses and jumping into an investment. There’s a chance that your original plan might go sideways. Where do you go from there? Having multiple exit strategies can give you confidence going into a new investment.

For example, your original plan may be to renovate the house and then resell it on the market. If the renovation costs end up being much higher than you expected, you may not be able to pay for the remainder of the project. Having multiple exit strategies can help you get out of a pickle like this.

If the property makes sense as a good rental property, you can cut the project short and rent the house out. That is an example of a different exit strategy that is still a good investment.

Another option here is to cut the renovation project short and put it on the market immediately. If you bought the property at a good price originally, that typically gives you more leverage, allowing you to maneuver to different strategies like these.

Conclusion

When investing in real estate, it is important to look at what other people have done. This is true for both successes and failures. By reviewing these 5 common mistakes made by real estate investors, you can save yourself time and money down the road. Make sure that you have a plan set in place before buying your first investment property.