No investment comes without some measure of risk, and that includes the often-stable real estate investments. Whether fix and flipping or fix and renting a real estate investment, you are likely to come across significant challenges from time to time and make a fair share of mistakes. Many investors approach investing in property without doing their due diligence and make avoidable mistakes, all in the name of getting a deal which may come back to bite them later.
Avoid These Real Estate Investing Mistakes
Mistake #1 – Making It Up As You Go
One of the biggest mistakes real estate investors can make is approaching an investment without having a plan in place. Even for more experienced investors, buying a house on a whim is a big gamble and never a good idea. Without having created an investment plan and having done some detailed market research, acquiring a property might end up costing you more than it’s worth. You want to avoid ending up with a home that’s a “money pit”, won’t sell and is continually eating into your personal funds. Before buying any property, you should create a plan which covers aspects like the financing, renovations, maintenance, management of the property and much more.
Mistake #2 – Bad Hires
Chances are that when renovating a property, you’ll make use of some outside help such as contractors, sub-contractors, realtors and lawyers. The biggest mistake real estate investors make is hiring professionals who aren’t qualified, don’t come with references or are unable to work within the set timeframe. This ends up costing an investor a lot in having to redo large portions of the project, or having to find other people to take over the already-started work. When it comes to checking references, you should ask for an example of a project they worked on where they were a key player, check online reviews, social media, and backgrounds for any lawsuits or other known problems.
Mistake #3 – Overspending And Over-designing
When renovating an investment property, there is a delicate balance in which you must make the property appealing to buyers or tenants, but not overspend on design and features. Investors should really focus their spending on the rooms of the home which will bring the most value – kitchens, bathrooms and closets, and then smaller facets like lighting, painting and landscaping.
In general, the advice experts give most often is that it’s best to avoid purchasing properties which have so many issues that it’s difficult to estimate the costs, or which will have extremely costly repairs such as cracked foundations. To stop yourself from overspending on design or repairs, you can have a property inspector check out the home, and have them determine what needs to be done or upgraded.
Mistake #4 – Buying with No Exit Strategy
Setting up an exit strategy is an essential part of being an investor in any field. In case your property investment doesn’t work out, you’ll want to set up some method through which you can recoup funds or get out of the investment without losing everything. By having a strategy to fall back on, it’s possible for the investor to minimize any risks they may come across while renovating, selling or renting out the property. If the local market takes a downturn, for example, instead of selling the home, many investors turn to finding tenants and renting it out until the market improves.
In order to have a truly successful real estate investment and minimize personal risk, you should be aware of these common mistakes. Real estate is not a small financial investment – in order to be profitable, the investor needs to do their research and have a plan ready to execute. To stay in the green, you should focus your efforts on hiring the right people to work with and renovating the spaces that will bring the most value for buyers or tenants.