Common Mistakes First Time Real Estate Investors Make
As with any new skill, investing in real estate may take a while to get used to. There can be a steep learning curve for first-time investors, but with a little extra effort, you can learn from the mistakes that more seasoned investors have made before you.
The best approach to beginning your real estate investing career is to research and do your homework ahead of time. Luckily, there are some straightforward guidelines first-time real estate investors can follow in order to avoid common mistakes. In this article, we will guide you through some of the most frequently made mistakes for first-time investors, and how you can avoid them. Let’s take a look.
Mistake Number One: Paying Too Much For The Property
There’s a common misconception in the real estate investing business that the majority of the profit is made during the purchase of a property. In fact, this is not quite the case. Profit does often come from the purchase of the property, but if you pay too much it may not actually be all that profitable for you.
If, on the other hand, you buy the property at the right price and the right time, then you are building in profit right from the start. That way, your investment will continue to grow in worth. So how can you avoid paying too much for the property?
Make sure you do your research beforehand. Don’t buy based off purely emotional reactions to the property, or out of a sense of desperation. Make sure to look at cash flow analyses to figure out whether you are getting the best deal in the long run. Instead, craft a plan based off of your research, and then stick to it once you start browsing the marketplace. In the following sections, we will outline a few more specifics to watch out for.
Mistake Number Two: Not Doing Proper Due Diligence
When you first start out looking into real estate investment options, you may be amazed at the wide variety of enticing investment prospects out there. But one thing first time real estate investors in particular should watch out for is the possibility of deception. Buildings may not be as sound an investment as they first appear, and you will never know the difference until you investigate further.
So doing your proper due diligence is a key part of the real estate investment process. Here is a short list of things you should look out for, which you can discover by digging a little bit deeper:
Structural Problems
Is there foundational damage to the property? Does the home need major renovations? If so, they could set you back by tens of thousands of dollars, depending on how much needs to be fixed. If there are inherent structural issues, then that will mean ongoing unexpected costs for as long as you own the property.
Environmental Problems
Some rural properties in particular can be at risk of natural disasters, or simply the regular wear and tear of the environmental atmosphere they are surrounded by. Black mold, insect infestations, humidity, heat related damage, flood risks, or fire risks are all potential issues that can be masked in appealing advertisements.
Poor air quality, soil pollution, and even noise pollution can also affect your real estate property value. Investigate more thoroughly to determine possible risks caused by common environmental problems before you make your investment decisions.
Title Issues
Before you invest in your first property, you will want to make sure that the property itself is fully legal and in compliance with local ordinance regulations. Make sure any and all issues related to zoning are in order. The last thing you want to face as a first-time real estate investor is a legal battle over your brand-new property.
Mistake Number Three: Ignoring the Internet- But Also Blindly Embracing the Internet
The internet is an extremely valuable tool for finding real estate investment opportunities. With online searches you can put in search parameters that narrow down your search to show only the types of properties you are looking for. Internet resources can display results quickly and allow you to screen through a broad array of investment options.
Part of your due diligence process should involve educating yourself about the state of the marketplace in general. Once you find a property you are interested in investing in, online databases, searches, and resources can be a great way to learn about current market conditions, competitive rates, and up to date rents.
There are, however, possible pitfalls that first time real estate investors should be aware of and hopefully avoid. Would-be investors who fully rely on the information published on the internet may be at risk of being misled. Investors should confirm information posted online with underlying sources.
For instance, zoning information for a local jurisdiction may be posted online, but in order to confirm all the specifics, new investors should go to the city bureau in person to understand the reality of building permits and other permissions needed in that local area. For ownership information, investors should back up their online research by looking at the actual deeds to the properties of interest. Even photos posted online can be misleading- instead of blindly following the images you see online, go take a look in person to confirm that what you are seeing is what you will get once you put your money behind your investment choices.
Another helpful resource for first time and experienced investors alike is to rely on the insights and opinions of a trusted expert source. If, for example, you are trying to find information about investing in a lakeside property then you may benefit from working with a qualified expert realtor. Their experience and insight can lend themselves to a more successful investment, and you will find likely find that you make a larger profit from your real estate investment in the end.
Navigating the Marketplace
With so much information out there and so many factors to consider it may seem overwhelming to start working on finding the right real estate property to invest in.
The good news is, with a lot of research and due diligence, even first-time real estate investors can work their way through the slew of information and variety of properties available out there.
Use the advice and resources mentioned above to dispel misinformation and learn what you need to know about specific properties and the state of the marketplace today.