Inspired by characters like Bravo’s Jeff Lewis and TV shows like Flip or Flop, many people who had never thought about buying property want to become real estate investors. However, it’s not as easy as it looks on TV.
Many of the people on those shows have extensive real estate experience and know their local markets well on top of having interior design prowess. So before you get to lay down the cash, do your homework, figure out the answers to the tough questions and avoid the pitfalls that commonly befall neophyte investors.
What kind of investor are you?
If you’re thinking of joining the ranks of residential real estate investors, you must first start by figuring a few things out.
For example, what type of investment are you thinking about?
- Rental property?
“Gaining a deep understanding of your style of investing is crucial with real estate,” Abhi Golhar, host of Real Estate Deal Talk, said in a Forbes Magazine article. “Some like to be adventurous and flip for profit, others like a steady cash flow. Whichever you choose, make sure it’s something you see yourself doing day in and day out. Otherwise, you’ll wake up in 10 years having created a job for yourself and not the dream you wanted.”
If you’re trying to figure out your investment personality, think about the pros and cons of renting your home. Deciding whether renting is for you will help you narrow down your options.
Should you rent your home?
When deciding whether to hold onto the property as a rental or just flat out fix and flip it, consider the pros and cons of renting your home.
Also, if you do decide to rent, consider your options. Do you want long-term renters who could stay for years? Or would you rather have less of a commitment and opt for short-term renters via VRBO or Airbnb? If you live in a vacation or touristy town, that might be your most-profitable option.
And if you intend to use your investment property as a short-term rental, check out these home insurance tips for Airbnb owners.
5 rookie mistakes to avoid
Let’s get right into some of the rookie mistakes common to investment property buyers. Avoid these errors at all costs.
1. Looking at only a few properties before buying
Successful investors consult multiple sources of information before buying a property. Real estate agents who commonly work with investors are excellent people to partner with. Never be afraid to ask to see more properties.
Also, keep in mind that agents clearly profit from real estate sales, so don’t let them be your only source of information. Do your own research, look at multiple properties, and do a financial analysis on each one before committing.
2. Skipping due diligence
It’s your job to figure out the actual worth of any property you’re thinking about buying. Due diligence will help you compare what similar properties are worth as well as neighborhood amenities and if it’s profitable. Understanding what a property is truly worth will help you get the best price.
Don’t hesitate to call people in for inspections before you sign on the dotted line.
3. Not researching the neighborhood
Just as much as you need to do your homework on the house, you also have to look at the street and the overall area. Talk to locals and real estate agents to help you figure out which parts of the city people want to live in, and start looking there. Keep in mind schools, neighborhood reputation, amenities, transportation, commercial areas and incoming development.
4. Feeling emotionally attached
Regardless of what type of investor you are, you’re likely not staying in the home you purchase as an investment property. Remember, buying an investment home isn’t about you, it’s about profit. Keep in mind the saleability of the home rather than the features you personally like. Think about what buyers and renters in your market are going for and capital growth before putting an offer down.
5. Having a bidding war
Regardless of whether you’re buying at an auction or just in a good old-fashioned bidding war, don’t. The idea is to buy an investment property fairly inexpensively and then get the most out of your investment.
With so much inventory shortage out there, multiple offer situations are fairly common, but don’t get sucked in because you’ll probably end up offering a way higher price than you should. So keep in mind the due diligence you did, stick to what you think the home is worth, and don’t be afraid to back out if the bidding gets too rich for your blood.
Make the decisions that are most profitable for your individual investment plan. Don’t get caught up in the common mistakes real estate investors make.
This articles has been contributed by our friends at HomeLight.
HomeLight analyzes real estate transaction data to match you with top real estate agents who sell homes faster and for more money. Our Seller’s Resource Center guides you through every step of the home-selling process based on real estate market research and advice from top real estate agents and industry professionals.
For more tips on how to start investing in real estate and always buy the best rental properties, keep reading our blog.