Thinking it’s a Get Rich Quick Opportunity
Being a real estate investor is not a sudden flame so much as a slow burn to making money. You will need to take the time and money to update your investment property before choosing to sell or rent it. After that, there is the turnaround time to start making money from renting or from flipping the property and starting on another fix and flip property. Many real estate investors look into short term lending, such as what Capital Fund 1 provides, in order to afford rehabilitation cost to the property
Planning as You Go
Being a real estate investor requires a lot of planning. Don’t go and buy a property without a plan for what you’d like to do with it afterwards. Some lenders may not even help with the purchase unless the borrower has a plan for the property. Having a plan that can be used for any property can especially be important in the case of winning a home at auction, and needing to obtain the hard money for it in 24 hours. Capital Fund has a lot of experience in assisting borrowers with hard money loans for an auction purchase, and is able to approve and finance the borrower in 24 hours.
Paying Too Much
This point goes back to how real estate investing is not a get rich quick opportunity. Paying too much on a property that won’t provide at least a 10% profit will actually have you taking steps backwards rather than forwards. It’s best to offer as low as you can, and compare prices of similar houses in the neighborhood so as to provide a fair price on the property so that it can sell quickly, so as to not drain on property taxes.
Not doing Your Due Diligence
Just because you have the funds to purchase a property doesn’t mean you should. You should go into the purchase thinking about potential repair costs, what items or rooms may need to be updated, and how the market conditions may affect the property later on. You may have been able to purchase that home at such a low price because it is out of date and needs some repairs before it can match the rest of the neighborhood’s price tags of $300,000. On top of that, the future is always changing, meaning that the property may not appreciate over time the way you think it will.
Before you jump into you or your family’s savings, it’s important to learn the ins and outs of being a real estate investor. There are many resources to use in order to educate yourself on what it takes to be a real estate investor. Look up and see if there is a Real Estate Investors Association close to you that provides monthly meetings that cover an array of workshops, a market update, and a group of people who may be able to give tips to your real estate investment career. Their website may even provide information on how to get started as well, and of course your local library is a resource to never turn down for any information.
Going at it Alone
Another reason to look into your local Real Estate Investors Association is to build a team of professionals. Unless you’re qualified as a real estate agent, an appraiser, as a home inspector, a closing attorney and a lender, you won’t be able to go very far. Even if you are qualified as all of those, you could end up losing precious time on securing a deal on a house or when trying to sell the house. Your community at the Real Estate Investors Association can help you assemble a team mightier than the Avengers.
Being Narrow Minded
Here at Capital Fund 1, we want to know what your exit strategy is for your property. Do you intend to sell, rent, refinance, or pay off the property entirely? What if you first plan doesn’t go as well? Don’t let yourself get stuck into the thinking that you have to flip the house immediately, and if it’s not getting the attention you expected you can always choose to rent the property till the market is more welcoming for sellers.
Low Volume of Deals
If you’re planning on making a career out of being a real estate investor, then you need to work on more than 1 deal at a time. This means having multiple assets on the market ready to sell, be rented, or getting rehabbed so the property can compete on the market.
Misjudging Cash Flow
The cash flow from your rental or fix and flips may not be as steady as you think. You have to pay for advertising, the mortgage, taxes, insurance, homeowner or condo association fees, among potential repairs and rehab cost of the property. On top of that, if you choose to have a property manager, you can expect to pay them 7-10% of the monthly rent being made, which can do damage to your wallet. If you have to change a fix and flip to a rental property, take the time into finding a fair rental rate that can cover most, if not all of those costs.
How long do you think it will take to renovate and sell a recent property you’ve purchased? How much will it cost to renovate the property on top of the taxes and insurance you’ll pay monthly? If you double the costs and time, and are still able to make a profit off of renting the property you have made a good deal. You don’t want to go in without knowing if there is potential to profit in a longer amount of time than your expected limit.