6 Common mistakes Real Estate Investors should avoid

3 years ago

6 Common mistakes Real Estate Investors should avoid

Real Estate certainly gives returns, but they may not be so quick and added to that, it is not a child’s play either to take things for granted. There are multiple instances where real estate investors have lost a lot of money investing in properties. That is precisely why you need to be an expert, and at the same time, you need to conduct proper due diligence and consult with many people, including a seasoned real estate agent, before you close an investment deal. As there are many slips between the cup and the lip, many factors need to be judged and carefully weighed before investing in real estate. Nevertheless, the common mistakes that you should not commit as a real estate investor are listed below to give you an idea and help you avoid those mistakes.

Mistakes you should avoid as a real estate investor :
1. Going without a plan
When you have the financial means to invest in real estate or property, investing can certainly seem to be a lucrative proposition. In most cases, people having the potential to invest jump on a deal that looks attractive to them. This is rather a non-systematic approach or a non-scientific one, as proper planning should always precede an investment in real estate and essentially not the other way round.

We mean by proper planning exactly what you would do with the property you intend to buy. This is the thought that, in most cases, comes to mind after the investment is made, which is fatal. Proper research about the area, prospects, future prices and the estimate of the profit of the property that you are about to buy should be thought beforehand, even before investing. A proper strategy should be culled out in advance even before you embark on the property search to purchase, and then the right property that fits into your strategy should be searched in the budget that you are looking for. If you do not have a strategy in place, it is quite obvious to get caught up in the trap and attractions of the properties and wrong assumptions, especially in the sellers’ market.

2. Not enough understanding of the local market, finances, and dearth of learning
Real estate investing requires years of study, reading, research and practical experience for you to become a master. Although you may not be a master when you start investing, a plan to educate yourself to the need is utterly necessary. It is equally important that you educate yourself and do the necessary homework that would help you make a smart and informed decision before you spend money.

Your knowledge also includes the understanding of the local market, and as an investor, you should understand the land value, property value, absorption rates, inventory levels, and the average days on the market of the properties for sale. These data would help you take the decision of when a property is worth purchasing for investment purposes. It should be kept in mind that just buying a property is not enough, but procuring and reserving the capital for its maintenance is also equally important. As you would be the property owner and would give the property for rent for your returns, the money you would require for the maintenance of the property has to be calculated beforehand.

On the other hand, if you are thinking about flipping properties and making a profit out of it, it is better not to take much of the financial burden. But the management of the property is something that you need to think about even before you purchase the property. You also need to keep in mind the soft costs that accrue when you own a property like closing costs, miscellaneous expenses, commissions, carrying costs, decoration and renovation costs, and the like, that can make a dent in your pocket inadvertently if you do not estimate these even before you purchase the property.

3. Spending too much without having exit strategies 
It is always true that the more capital you invest in a property, the more financially blocked you become, devoid of freedom. In this context, the mistake that is often committed is buying a property at too high a price. So the right thing to do is to consult the real estate agents, do prior research, and find out the current price in the locality and it is always profitable, especially for an investor to buy at a lower price.

Another mistake that the investors often commit is not having a plan B or C. You may have a plan A for your property, but not having alternative plans may not be a wise proposition. Quite often, a pre-fixed plan may not work because of a change in the situation, and then a contingency plan or a plan B or C may be handy or else you may find yourself stuck with a property and not having a way to get out of the situation.

4. Not conducting due diligence and buying in the wrong area 
To optimize the gain from an opportunity, you need to buy the right property at the right time by conducting proper due diligence before the purchase of the property. In case you do not conduct proper due diligence, you may land up with a property that may drain your money, increasing your investment and leave nothing for you to make a profit out of it. Without proper due diligence and research, you may also land up buying a property or a home in the wrong area where selling may turn out to be difficult. Factors like crime rate, quality of the habitat and population, highway access, utility centers, quality of schools, etc., surely have a significant bearing on the property’s salability.

5. Making wrong improvements 
The improvements you make in a home that you are going to fix and flip have to be optimized to make a profit through reselling. You need to decide which parts of the home you would renovate and improve in order to get the best price. Most often, without any prior calculation, the investors invest in a property for improvement and renovation, the costs of which they cannot salvage from the sale of the property resulting in losses.

6. Choosing the wrong real estate agent
Choosing the right real estate agent is essential in making gains from the investments in real estate as your agent can turn out to be your most helpful guide and help you refrain from committing the above mistakes. An investor should pick someone as an agent who is in the business for a considerable period of time and has an incredible track record of success. If you have multiple properties, you can take a chance, but if you have a limited budget with a limited number of properties, the agent you choose can make or break your success. The best counsel in this regard is to interview an agent before settling thoroughly. The analysis of whether to buy the property is something that a skilled agent would do for you, as buying the wrong property can block your capital and the most dreaded mistake you can ever commit.