Investing in real estate is a lucrative endeavor if you know what you’re doing. If you’re new to the business, you probably have a lot to learn to avoid the common real estate investing mistakes. Understanding some things to avoid as a first-time investor could help you get off to a better start.
Not Planning Ahead
Real estate investing is all about planning ahead. If you purchase a property with a plan to come up with a plan for it at a later date, that’s not the kind of plan we’re talking about. The last thing you should ever do is purchase a property with the intent to figure out later what you’ll do with it. To start with a plan, consider:
- What type of properties you want to invest in
- What location will yield the largest ROI
- If this will be a long-term or short-term purchase
- The profit you expect to make
- The current housing market
- Whether you’re planning to rent, renovate, resell, etc.
Once you have answered some of these most important questions, you’ll be on track to a plan that will help you be successful. With your criteria in hand, you can look for properties that tick all the boxes of your plan.
Looking at the Market on a National Level
If you’re looking at the real estate market on a national level, or even within another state than where you plan to purchase, you won’t get an accurate idea of what is happening in your local market. If you’re buying local, you need to understand local home values, land values, absorption rates, length on the market, inventory levels, etc. When you understand these at a local level, it helps you determine whether a particular property would be a quality purchase.
Forgetting There Will Be Other Opportunities
Overpaying in real estate investing is a problem among new investors, and one of the main reasons this happens is because they panic. They find a property they want and rush into the purchase without going through the due diligence process correctly. Real estate investing is a slow process requiring patience. Getting impatient typically leads to overbidding, which can lead to taking on more debt than you can handle and taking more years to make a return on the original investment.
Never jump into a real estate purchase because you get anxious about there being another opportunity that’s just as good. There will always be other opportunities. Sometimes you’ll find a better opportunity than the one you’re getting anxious over. Take time to look at the local market, stick within your budget, and let logic dictate how you’re going to move ahead. If this particular opportunity doesn’t make logical sense for now, patiently search for the next real estate opportunity.
Waiting Too Long for the Perfect Opportunity
Although patience is the key in real estate investing, and you don’t want to jump at your first option, you also shouldn’t wait too long for the perfect opportunity to come along. Yes, there will always be another opportunity, but you are in the business to make money and you’re not going to make anything if you wait too long.
Write down a list of priorities. Read over the information you wrote down when planning ahead. Actively look for the right real estate purchase and pay attention to the signs that lead you to believe you should make an offer. Making an offer doesn’t lock you into the purchase. If negotiations don’t go as you’d planned, you can always back out, but this at least gets your foot in the door of a possibly wonderful opportunity for investing.
Hoping To Get Rich Quick
Real estate investing isn’t a “get rich quick” scheme. It takes hard work and dedication to ensure your properties are marketable to renters or buyers. When you hope that the process is going to provide you with a large sum of money in a short amount of time, you’ll likely get your hopes up and possibly get frustrated in the meantime.
Instead, realize that little by little as you sell or rent your properties, you’ll accumulate an income. You might purchase a new home and rent it out as-is, slowly gaining that income back over the years. You might purchase a run-down home to fix it and flip it, but the return will be small in the beginning. Just because it’s a slow process, that doesn’t mean you can’t make a significant amount of money. As you start paying off your debts and watch the money start to accumulate, you’ll realize real estate investing is a lucrative career after all, but it takes time to get rich.
Doing It Alone
You need to work with a team of professionals when you’re investing in real estate. Is there a Real Estate Investors Association in your area where you can go to get resources? Have you checked out the local library to seek more information? Have you contacted Capital Fund 1 to speak with a lender? If not, give us a call today at 480-889-6100, and let’s get your loan application started.
Due diligence on the cost for purchasing a rehab is basically ARV x .65 – Rehab (or – rehab – fee for a wholesaler). That makes all the difference. Some people skip this step thinking they can make it work. If the number doesn’t work, don’t do it!