Regardless of how many years you’ve been in real estate, mistakes happen. Even seasoned professionals might occasionally make unprofitable decisions or get into an unfavorable trade. These real estate mistakes are more common than you think, and shouldn’t get you down. To properly equip yourself for these challenges, familiarize yourself with this list of mistakes to avoid when investing in real estate.
Short-Term Thinking
Patience is a virtue; this is especially true in the context of real estate. Many first-time real estate investors buy investment properties with the expectation of massive returns in no time. Quite often, though, building wealth through real estate can take years and multiple smart investments. Whether you’ve invested in a cash flow rental property or are waiting for a property’s value to appreciate, patience is your best friend when reaping benefits from your real estate investment.
Many investors are also drawn to the idea of real estate speculation as a means of making money quickly. When speculating, however, the risks of real estate investing are multiplied. Consider looking into safer investments in order to avoid huge real estate mistakes.
Spending Too Much
Even seasoned professionals might fall into this trap: overpaying for an investment property. This is one of the most common real estate mistakes, and definitely one of the most costly. Be sure that you’re well-informed on how to find the market value, and that you’ve run the right analytics. A property needs to have a reasonably high return on investment in order to justify its price.
For this, it’s necessary that you run real estate market research. Looking into your real estate comps, for example, can be hugely beneficial for determining the right price.
Related: How Do You Find Real Estate Comps?
Not Negotiating
Buyers and sellers are both looking out for their best interests. Therefore, negotiating on an offered price can lead you to a place where both the buyer and seller are satisfied. In addition to the price, you can negotiate the terms of the sale and the responsibilities of both parties.
A good negotiator will be firm in their position, but understand when compromise is necessary. Brush up on your skills to make the best possible real estate deal each time. Settling for a subpar deal is one of the biggest real estate mistakes that investors run into.
Not Planning for Expenses
One of the biggest real estate mistakes you can run into is failing to plan for your upcoming property expenses. When buying a rental property, for example, you’ll need to consider ongoing maintenance costs and the occasional upgrades. Always assume the maximum to avoid surprises down the line. These costs need to factor into your return on investment calculation since the added cost might unfavorably skew your investment.
Misjudging Cash Flow
All landlords need to plan for the worst-case scenario. Vacancies in real estate are bound to happen occasionally, and savvy real estate investors need to make their plans accordingly. You can, for example, make plans to list your vacant property as a short-term rental for vacationers until a full-time tenant is found. Otherwise, you might want to make contingency plans, such as how much you’d be willing to reduce rent while remaining profitable. One of the most common mistakes real estate investors make is neglecting to make these backup plans and being blindsided when a vacancy occurs.
Related: How to Deal With Vacancies When Owning an Investment Property
Not Learning the Basics
Becoming a real estate professional doesn’t need any specific education, opening up the field to anyone with the drive to invest. Unfortunately, many investors make simple real estate mistakes just because they haven’t learned all of the basics of investing they need to thrive in the industry. Make sure you’ve brushed up on all of the real estate terms and formulas that you need, and the indicators which point towards a good investment. Common real estate mistakes can be avoided if you learn real estate fundamentals from the start.
Your research process never necessarily ends, however. The world of real estate is dynamic, and you need to consistently stay on top of the latest news and trends. Consider following some of the top real estate blogs, so that you know what to do and what not to do when investing in real estate.
Doing Too Many Things
No one can master everything. To avoid real estate mistakes, you need to learn when to delegate. Many investors, for example, don’t hire real estate agents since their commission would be an added expense. But the quality of your investment and the options you have available would be greatly increased. Don’t be afraid to hire people, whether it’s a real estate agent, property manager, or vacation rental manager if it makes financial sense. Quite often, being a one-person team can stand in the way of a successful real estate business.
Not Looking Into Multiple Mortgage Options
This is one of the most costly real estate mistakes that investors can fall into. Many people get drawn into a seemingly great mortgage, persuaded by a great pitch from their bank. Going with the first option you find is never a good idea, unfortunately. You need to carry out your due diligence and shop around as much as possible to find a mortgage that suits you. Over a mortgage’s lifetime, small differences can amount to thousands of dollars extra that you’ll need to pay. Be sure you’re well-informed on investment property financing before committing to a mortgage.
Related: The Best Approach to Investment Property Financing in 2019
Not Crunching the Numbers
The end goal of any investment is to make a profit. It’s therefore crucial that any real estate investor knows their numbers impeccably well before deciding to pursue an investment. You need to be familiar with cash on cash return, capitalization rate, return on investment, and everything else that might be relevant to your type of investment. Of all the real estate mistakes, this one is the most detrimental. Consider looking into an investment property calculator that can crunch these numbers for you, and confirm whether your investment will be profitable.
Bottom Line
Real estate investing can be hugely gratifying and profitable if done right. A single mistake in real estate investing can be very costly, and the savvy investor needs to be on the lookout. By doing your due diligence before any decision, you’re on your way to a good real estate investment.
