Are you interested in becoming a real estate investor? Does the idea of property ownership and positive cash flow appeal to you? Then you better be prepared to have what it takes to become a successful investor. Real estate for beginners can be somehow tricky for many first time investors. The main problem is that many investors think about real estate as a trendy investment concept that can be learnt on the go and without facing any problems. This is really far from the truth. Investing in real estate for beginners is a process and that process can result in mistakes if you are not careful.
The path to success in real estate for beginners is to try to avoid the biggest investing mistakes that have halted the progress of many real estate investors. It is easy to get deceived and get bad advice when it comes to property investing. The media, the internet, and people all play a part in trying to make people make a purchase that is not good enough to match their situation and/or aspirations. This is why when it comes to real estate investing, you should create your own path and that starts by understanding what pitfalls there can be on the way and which mistakes you should be avoiding.
Real Estate for Beginners – 5 Pitfalls to Watch Out for
1. Lacking Knowledge on Property Investing
Think of any consumer product that is on the market like phones, TVs, cars, and many more. Before any of us makes a purchase on any item of significant value, he/she studies this product carefully to assess its price by comparing it to other products to decide if the price is actually fair or not. Well, in real estate investing the scope of knowledge you have should be even wider than that. Investing in real estate for beginners can be extremely risky because of the money involved in the deals. This is why a great deal of real estate market study analysis, investment property analysis, property comparisons, and even hiring real estate professional help is needed to make the right investment decision.
You can start to educate yourself on property investing by asking questions whenever you can to those who have actual knowledge in the field. Ask your real estate agent, a real estate mogul, or your real estate lawyer. Don’t even stop there; when you view a property, ask about it in detail, and then ask about the neighborhood and its unique features.
Many people make this mistake: they just dive into the real estate investing world and start making a mistake after a mistake. They don’t have the willingness to learn or educate themselves about the local housing market because they think it’s possible to make it on their own, with their existing knowledge, easily. Don’t let that get into your head, there is always room to improve and learn.
2. Bad Financing
Signing a bad financing agreement is one of the most common mistakes made in real estate for beginners. It is such a common mistake because new real estate investors are not really aware of what they should expect. But what is bad financing in real estate investing? There are many things that can result in bad financing. For example, high interest rate on your mortgage, adjustable interest rates, and high monthly mortgage expenses are amongst the most popular features of poor financing.
Having a bad mortgage agreement to finance your investment property can result in many negatives for you in the short- and long-term future. Having a high interest or monthly payment means that you will be paying way over what you are supposed to pay, meaning that your loan will cost you more money that it should. The extra money paid will take you more time to pay back the loan, or it can result in negative cash flow from your investment property because of the high mortgage costs.
Avoid this mistake by finding the best possible financing deal before you purchase a rental property. Consult with many lenders and choose the one who gives you the best overall deal.
3. Not Hiring Professional Help
Real estate for beginners is not easy to many. Many new real estate investors start out by thinking that they know it all, or that they can close a real estate transaction on their own. While they might have completed a number of deals in the past that went well, the process may not go as smoothly in a down market – and there is no one you can turn to if you want to fix an unfavorable real estate deal.
No one can be a know-it-all when it comes to real estate investing. You will eventually require the professional services of a real estate agent, a real estate attorney, or even a professional property manager. Hiring these real estate professionals can cost you some money, but it will be a deciding factor in the success or failure of your property investment.
4. Overpaying for Properties
The subject of real estate for beginners is filled with examples of investors who have been tricked into overpaying to purchase an investment property. Overpaying for a rental property can result in huge financial losses in the future. For example, if an investor is buying the property to fix-and-flip, having overpaid for it already makes the profit margin incredibly low.
To avoid overpaying for an investment property, the first step would be to understand how to value rental properties correctly. Knowing the true worth of properties based on their location, size, and condition makes all the difference in the world for an investor. The most basic way to start evaluating properties is by doing comparisons. When you view a property, it is best that you compare its price with other similar properties in the same area that have the same features in terms of size and condition and that were sold within the past couple of months. Then you take it on from there to make a decision on the value of your envisioned property.
5. Planning Your Financials
Many real estate investors purchase properties because they see the price as acceptable. They somehow fail to think about what comes next, like the expenses of owning the investment property. Real estate for beginners must teach you how to never underestimate the importance of the expenses related to your property. Expenses like maintenance, property taxes, mortgage expenses, utility expenses, and insurance can be quite expensive for some rental properties, so it is always better that you know what you’re exactly buying by planning for it.
The best advice is to make a list of all monthly expenses that are associated with running and maintaining a home before actually making a bid on one. Once those numbers are added up, you’ll have a better idea of whether you can really afford a property.
Real Estate for Beginners – Conclusion
If you are reading about real estate for beginners, then you probably know by now that there is a certain way to start investing correctly. The pitfalls and mistakes mentioned above are some of the most important ones to look out for before buying your first property. Real estate investing has a learning curve, so the more you get into it, the more expertise you gain.