If you're just getting started in real estate investing, we recommend against jumping into the fray. While real estate can be among the most rewarding and safest investments, purchasing properties without doing the necessary research can put you at risk for negative cash flows and high vacancies.
All investors have made a few mistakes, especially when they were just starting in real estate investing. If you're planning to invest in your first real estate, here are the top five pitfalls to beware of and avoid to ensure your investment pays off to the fullest.
Failing To Make a Concrete Plan
One common error newbie investors make is not making a plan from the start. Before going house hunting, it is important to have a concrete plan to avoid losing money. To help you create an investment plan, here are some questions you should ask:
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What type of property are you looking to purchase? Is it a single home or a multi-family home?
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Are you planning on buying a fixer-upper or a newer property?
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Will the property be mixed-use or commercial?
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Will you rent the property? If so, who are your ideal tenants?
There are many other questions and investment strategies to consider. Still, one of the best ways to develop a concrete investment plan is by determining what you want from the property and what you hope it will help you achieve.
Taking Shortcuts in Research
It's easy to take what a flyer or a real estate agent says about a property without verifying what information is true. However, skimping on research can lead you to lose money or pay for a property with more money than it is worth.
When it comes to real estate investing, you should be twice as meticulous with research. You should also ask a lot of questions about the property and the neighborhoods where it is located. Pay extra attention to crime rates and flooding in the area. In addition, spend time learning local landlord-tenant laws and zoning requirements.
Doing Everything Alone
Spending countless hours researching everything there is to know about real estate investing won't make you an expert overnight. While it can be tempting to close a real estate transaction on your own, it pays to hire experts in the field to help ensure your real estate deals go smoothly. At a minimum, you should work with a real estate agent, a reliable home inspector, and a good real estate lawyer.
Underestimating Expenses
Apart from paying mortgages, there are other investment expenses to consider before purchasing a property, including maintenance costs, appliance and yard upkeep, property taxes, and HOA fees. If you're buying a fixer-upper, you might need to shell out some money to replace the appliances, cabinets, and fixtures.
Taking the time to plan your expenses can ensure that your cash-on-cash return won't take a hit. It also saves you from losing your investment due to financial issues.
Applying for the Wrong Loan
There are plenty of mortgage loans available in the market. However, you may only qualify for several. Before getting involved in the loan preapproval process, ask the loan officer if you meet the minimum requirements and qualify for both the borrower and property loan.
