For the longest time, investing in real estate was the “safe bet” for your money. Yes, those still recovering from the housing crisis might not be willing to call it “safe,” but they probably struggled because of one or more common investing mistakes. With the market recovering, people are again looking to find safe investment opportunities in real estate.
If you want to produce long-term returns for your money, real estate can be a great way to do that, but if you are looking to “get rich quick,” it’s best to be avoided. For first-time investors in property, the trick to success is in establishing a set of rules for yourself and then sticking to them. Here are a few tricks that will assist you in avoiding a real estate investment downfall.
Mistake #1 – Thinking you’ll get rich quick
With the exception of a couple of internet sensations, seldom does a person find themselves “getting rich quick.” Wealth is something that is acquired with long hours of hard work, combined with good financial choices. With so many people falling victim to self-help books that offer wealth and power, there are tons of others who enter the real estate investment sphere with no actual knowledge. It is very important to study if you want to get ahead. Genuine real estate investment that will actually pay off requires intelligence, tolerance for risk, and hard work.
Mistake #2 – Failing to plan
Establish a financial investment plan and then find the home that meets your needs. If you fall in love with a house because it appeals to you cosmetically or flashes a cheap price, this could be a good way to destroy yourself financially.
If you set a number for investment properties, you won’t risk spreading yourself too thin. These need to be looked at without emotion and based solely on the numbers. If a house fits your plan, you buy it, but if it doesn’t, you don’t. Worried buyers who are continually obsessing over individual properties should make an offer on several properties, so they have a fallback plan if deals fall through.
Mistake #3 – Doing it alone
One of the most dangerous decisions you can make when you are attempting to make a real estate investment is believing that you alone have the skills or knowledge to be dealing with homes. While we are not judging your intelligence or your talent, because you probably have both, it is not very likely you can be an expert on everything, from legal negotiations to floor laying and plumbing.
Smart and successful investors will create a safety net of professional individuals. Generally, it includes home inspectors, real estate agents, appraisers, closing attorneys, and lenders. While you might not need the expertise of all of them, it is very important that you respect their knowledge, so maintain good relationships with each one.
When it comes down to it, you are going to need a solid construction team. Investors usually hire their own property managers to deal with contractors, but you might want to create a personal working relationship. You will require painters, roofers, plumbers, electricians, cleaning services, HVAC professionals, and lawn maintenance.
Mistake #4 – Mismanaging money
The quickest way to sink yourself is through poor management of your funds. If you have inaccurate estimates or are overpaying for the sale, it can end up costing you exponentially, with all of your profits disappearing upon selling. You will also need to budget for the possibility your house may be on the market longer than you anticipated, or may need more work than you thought.
Your risk tolerance comes into play when you deal with the equity of your home. How much money can you realistically make off your house, and how much will it cost you? Is the investment worth your time? Sometimes taking risks pays off, but other times you could find yourself with a home that you can’t sell.
Have you been dealing with the real estate investments before? If you have experiences to share or can think of more common mistakes, share your thoughts in the comments below!
[Featured image credit: Brian A Jackson / Shutterstock, image cropped]