At some point in your life, investing in properties will look like a very feasible option. If that’s right now and you’ve got the dough, you should go right ahead and give it a shot. But before you do, please make sure you know what you’re getting into. Money doesn’t grow on trees so you’re going to want to make sure you’re making the right investments as much as possible. There will always be risks involved in real estate investment but there are ways to protect yourself, one of which is to avoid the many pitfalls that investors like you fall prey to.
Some of the common pitfalls in property investment include:
One of the biggest mistakes you’ll ever do is to go into property investments without a plan. Sure, there are many things in life you can plan as you go but investing isn’t one of them. Don’t work backwards. Don’t buy a house because of a good deal only to start thinking afterwards what you would do with it. Start with a plan and then find a property that fits that plan.
Having a get-rich-quick mindset
There’s really no harm in wanting to earn some quick cash but that kind of thinking affects how you’ll go about property investments, setting you with unrealistic expectations and that’s not a good thing. The infomercials may have made it sound so easy but it’s not as easy as you think. There’s hard work to be done to make investments work and you have to be willing to do just that. This isn’t to say that property investments will always be an uphill battle but you have to understand that you won’t go anywhere with doing nothing.
Investing in properties involves a myriad of aspects that each can only be handled effectively by a professional in that field. As such, trying to do it all on your own just won’t work. You need a team with at least a real estate agent, a home inspector, an appraiser, a lender, and a closing attorney, and you’ll need them for both your own deals and the deals you wish to arrange for other buyers. You should also consider having a maintenance team with an all-around handyman, a cleaning service, a lawn maintenance service, a plumber, a painter, a roofer, a flooring installer, an electrician, and an HVAC contractor. You just won’t have time to be an investor when you’re doing everything else. Delegating tasks will free enough room for you to focus as an investor, which will certainly increase your chances at success.
Spending too much on a property
To make profit, you have to gain more than what you spent. It is necessary to spend because you need to sow seeds to reap anything. Before you buy a property, you should already have an idea as to how much profit you will be making. Mistakes in analysis can happen though so you end up paying too much and getting so little profit. Avoid this by practicing due diligence.
Skimping on homework
Knowledge is power and this applies as well to investing. Don’t be like so many wannabes eager to invest all of their assets without asking so much as one question. Take the time to educate yourself about investing so you don’t end up endangering your financial security due to a botched investment. Read books. Attend seminars. Talk to rental property owners. A lot of the resources you can check out are available free of charge so there shouldn’t be any reason why you can’t brush up on investments first before making one yourself.
Acting too rash
It’s easy to get excited when finalizing a deal. It’s also typical for investors to move quickly through transactions but that doesn’t excuse acting too rash, like signing contracts and writing checks without having done your research. Just because a house looks pretty on the outside doesn’t automatically mean it will be just as good on the inside. Take the time to actually visit the property so you know what you’re getting yourself into. Don’t buy property just because you think it will appreciate, but because you know it will appreciate as supported by research on the market.
Not going with the flow (of cash)
A proper cash flow is essential to holding and renting out properties because this will ensure maintenance costs are covered. You can’t just get a property manager because many usually prefer larger properties over single-family homes. There’s also the fact that property managers are commonly paid between 7% and 10% of the rent per month and that could be a huge expense. If you’re going to be shelling out that much on top of maintenance costs, you might as well just put your cash in a mutual fund. It can take up to six months before a property is leased so you have to make sure that you have enough to cover costs by at least that much. If you don’t factor that into your budget, you might end up broke before you get the property off the market.
Taking your time
While it’s not ideal to be rushing about, neither is just focusing on one deal at a time. If you’re going at that rate, you’re not running a business (yes, investing is a business). Rather, you’re just handling transactions. What you want is steady flow of prospective deals. With enough deals to go over, you’ll be able to weed out the ones that are not so lucrative to let the real gems shine through. You won’t have that opportunity to compare options if you don’t have anything to compare to begin with.
A lot of people buy property but get stuck with it because they’ve run out of ways to dispose of it, mostly only either planning to sell or rent it out. But what if the plan you chose doesn’t pan out? Always have a contingency plan for when your primary doesn’t work out so you won’t be stuck with a property on the losing end. For example, if your plan A is to sell, make renting it out plan B or at least a lease-purchase option you can present to the buyer. Now you’ve got a plan C as well. If plans A, B, and C don’t work out, you can resort to plan D: sell at below-market prices to another investor. This will not make you the profits you have hoped at first but at least this will help you cut your losses sooner.
Investments will always have you working with estimates but they’re a good gauge of what you stand to gain or lose. To be on the safest side, get what you’ve calculated and double the time and cost you think it would take. If it’s still projected to give you profit and yet the option to rent it out is still open, it’s leaning towards being a good deal.
Do it right the first time!
There are a lot of properties you can invest in. Homes, apartments, and condominiums are available for the taking, each one offering an opportunity for you to invest in real estate and enjoy profits. Investing in real estate is not a walk in the park but you are generally assured that whatever effort you put into it will be rewarded. There will always be risks but knowing what you’re getting into will help you navigate the maze to get to your goal. Learn from the people that have gone before you and don’t let these common pitfalls in investment get in your way of success.