The primary reason so many real estate investors fail is because they go into it with a get rich quick mindset. Real estate investing is not easy, and anybody who tells you otherwise is full of malarkey. It requires time, financial commitments, and persistence. If you’re not careful, you can find yourself bankrupt after your first investment. On the other hand, if you’re in it for the long haul, here are some common mistakes to avoid.
Many new investors fail to realize the importance of extensive research. You should know more about the property than the previous owners and the city inspectors. Research is the foundation of nearly all successful real estate deals.
If you’re not willing to do the research, don’t get into the real estate game because you’re going to lose. Time is money. You’re better off doing a week of research than discovering months down the road that you grossly underestimated your expenses.
Also, learn about the area or region of the property from its local government or online resources. Begin forecasting the financial growth by analyzing economic history, the city’s infrastructure, pricing trends, rental, and vacancy rates. Look at the demographics, for example, a state like Missouri that offers loans to determine your potential customers. By analyzing general population growth, you can determine the average age of the residents, along with the racial makeup and average household incomes.
All successful real estate investors have a short-term and long-term investment strategy. Investing in real estate is expensive. Renovations, repairs, utilities, and closing costs are upfront expenses, and they add up fast. Failing to have an expense plan is like making pizza without the dough. Your expense plan should consider the age of the building, repairs, potential upgrades, plumbing, and electrical.
You also need to look at the cost of holding, particularly if you’re flipping properties. Selling real estate can be unpredictable due to many factors, such as buyer’s credit or outstanding property liens. As a result, it’s not unusual to experience delays, and sometimes delays can extend for weeks or even months. Therefore, it’s best to plan for the worst scenario.
Lack of Cash Reserves
The one crucial skill you must master is the basic principles of math (addition, subtraction, multiplication, and division). Cash flow is just as important as research and planning. You should always calculate expenses and income on every potential real estate deal, prior to purchase. It’s equally important to have cash put aside for unexpected costs, like a new roof, air-conditioning system, or a renter destroying your property.
Lack of Self Education & Resources
There are very few real-estate blogs and online forums that mention the importance of being well-connected. The world is continually evolving, and the real estate industry is too. Your research and knowledge should extend well beyond the property your purchasing. As a new real estate investor, it is imperative to learn about all financial resources available to you.
Your knowledge should include some of the following: banking and private loan sources, construction for repairs and minimizing overhead cost, marketing to decrease hold time, and a sales strategy that motivates prospective buyers. Join real estate investment groups and connect with veteran investors. They not only offer valuable information, but they may also bring you some really good deals. Be that sponge that soaks up everything about real estate because the more you know; the more successful you will be.