Getting a fair deal by investing in real estate is certainly not as easy as it might seem at a first glance! Apart from the fact that it is a time consuming and a stressful activity, selling and buying properties involves a lot of risks as well.
Here, we’re not only talking about an initial investment and then wow a money transfer in your bank account. This is not going to happen! Sure, it may look a simple task, but you’ll find out in the end it is not. If it were to be true, we would have all been involved in this business and rich too by now!
The key to success: build the right team of professionals!
However, don’t take things that tragically! You can still make money, but only if you know how to avoid some of the most common mistakes! Apart from this, you should always have a team of experts to support you, and some of the most important ones are the real estate agent and a great handy man! But, we’ll talk about this later on!
Among the first things you need to do is to identify your goals, research the market and then study the process! The point is that you need to be aware of the risks and then determine expenses prior to purchasing! This may save you some dollars in your pocket!
Let’s clear something from the beginning: real estate should be seen primarily as a business and not as a hobby! The worst you can do is to believe you should just invest some money to buy a property and then forget about it. Misinformation here can be really costly!
Tips for novice real estate investors!
Investing in real estate can turn out to be a big issue if you don’t know what you are doing! Let the fear of loss and failure aside, and believe in your business! You too can become a successful real estate investor! Here are the things you need to consider!
- Revenue vs expenses
A huge category of newbie investors has too high expectations that unfortunately never turn into reality. How come? Well, because their requirements are too illusive! They are not pragmatic! They fantasize that their income will be a lot higher than their initial expenses.
Well, the result is not that easy to attain. Undoubtedly, real estate can become a business, but the secret depends on how you manage it. Without experience and with no experts by your side, success appears to be just unreachable!
- Wrong estimation of the renovation costs
Renovating has always been a challenge. You never know what you’ll be facing once you really get down to business and begin to dig into the situation. Wrongly estimating the renovation charge may cost you more than you can believe.
In fact, this is one of the most common mistakes. Word to the wise: Stick to your initial formula and to your initial plan! This will help you stay on the right track and on the right budget too!
- Misjudging renovation time
Time is money! So, by miscalculating the time you can afford to have the property under renovation, you will affect your budget directly! In real estate time is of great importance! You need to have all the necessary conditions to close the deal successfully. Otherwise said, being a newbie real estate investor is pretty like a lottery game! You never know what is going to happen next!
- Not taking into consideration hidden costs
Hidden costs are part of the business, everyone knows this! However, unfortunately, being aware is not everything, you also need to have backup money for any surprises that might appear along your way! Extra expenses may lead your plans to a direct failure, unless you have a good strategy in front of you!
- Less work, more money
Choosing to invest in real estate requires a lot of work. Here, you cannot possibly think you can get rich by doing nothing. You need to be in a permanent connection with your properties and be there when any accidents might happen. Renovations or fixing up small malfunctions should be dealt immediately! The more time you waste, the worse the effects will be!
- Flipping properties, a real investment?
Knowing how to make money from flipping properties is difficult and it’s not for everyone! As great as it might appear on TV, the reality is slightly different! The real estate arena doesn’t allow unrealistic numbers or wrong speculations! Here, there is no place for newbie mistakes!
- No research
Before getting into this industry, you need to do a thorough research and see how things really are. Don’t get into something completely blind and all by yourself. You need a plan, you need to have a clear image of how things are! The issue is that many first-time investors see this business as one with fast-paced results and not as a long-term investment! Is this a real speculation?
- Overpaying
Overpaying for a property has a lot to do with how much you know about the real estate market, about the neighborhood and of course about the professionals whom you are working with. Don’t try to succeed alone, because there are high chances you’ll just end up in a debt! You need guidance and strong business partnerships!
- No planning in advance
Before starting to invest money in real estate, make yourself a plan! Take notes and do your homework! This way you’ll avoid a financial disaster and throwing money down the drain!
- Doing it all yourself
The minimum experts that you need is a savvy real estate agent, a successful property inspector, a great attorney and of course a handy man. Think about it, you cannot do it alone. You won’t have neither the time, nor the energy! Once you get to handle things you’ll understand that their presence is of utmost importance!
- Ignoring risks
Risks are part of the picture, there is no other way. You face numerous challenges once you choose to invest in real estate. Some of the most common problems newbies face is that they get to a dead end or they don’t recover their money at all. The immediate result – regret! The risks are there, it’s true, but the secret has to do with the method you choose to handle them!
- Getting emotional
If you decide you want to invest in real estate, then it’s not about buying your own personal home, it’s plain business! Detach yourself and don’t get too involved! It should not be a matter of personal involvement… At the end, you just want to earn some money, right?
- Having no strategies at all
Strategies are your backbone in this industry! Without them you’ll just hold on for a small period of time, make all sorts of mistakes and then run out of money! Get the advised opinion of specialists and try to create a down-to-earth plan!
- Not having realistic expectations
Try not to see easy earnings where they are not! And the real estate market is certainly not an exception to the rule! Try getting a clear picture of the actual condition of the market and the real percentage of success. See if it works for you, but most importantly, stop when something doesn’t’ sound quite right! It’s probably not right!
- Not being patient
Wait for the perfect moment and the right opportunities to appear! Don’t hustle because you might just ruin everything. After all, it is said that success can be built step by step!
Making mistakes is part of life, so contrary to popular belief – even real estate mistakes can be handled if spotted early! Don’t hold yourself back because you have fear you’ll lose money – at the beginning you are most likely going to face difficulties!
From another point of view, there is the other category of newbies who think they know them all and therefore they don’t need professionals. Don’t make the same mistake! There are minimum chances you’ll close the deal successfully without losing time or money!
Get yourself the right people by your side and then just enjoy the results! In the end, it’s not that difficult if you follow some simple rules and avoid some common blunders…
Many good points, Lisa. As a nationwide lender, I often see apartment and commercial buyers underestimating the true cost of operating a property over an extended period. A lender probably will not make that same mistake in their analysis and you may end up with a smaller loan than you expected. Buyers also get into trouble expecting to self-manage a property beyond a reasonable distance.
Also, don’t make the mistake of believing that if you gave back a property to a lender, or were involved in a short sale, that you can’t get another apartment or commercial loan. We will consider those situations (past and current) without you having to face hard money rates.
Robert Rice
Tips,
Buy close to home – unexpected trips won’t be such a hassle, easier to keep eye on property. Only buy in neighborhoods you know well.
If your starting out with just a couple units you need to learn ASAP maintenance, you can’t afford to call handyman every time something breaks. You need to learn management ASAP, and you will if you do it yourself. No agent cares about you like you do.
A great way to get started is to by a 2,3 or 4 unit and live in one unit.
Buy worst building on street so that every $ you put into it gets pulled up more by surrounding property.
Success may come slow, I mean many years. I’ve been doing this for 35 years and the last 10 have been a gold mine. Good luck, Talk to people who have done it, they will love to tell your their story.
An excellent list. Very thorough. As a Real Estate Agent in Fort Lauderdale I deal with many investors. We have an extremely dynamic market where fortunes are made. If I were to add anything to this article it would be to connect with a local expert. Many novice investors think they have an internet connection, they can figure everything out online. But every location has its quirks and foibles. A local expert can put everything in historical perspective. In addition, according to the Internet I win the Nigerian lottery three times a week. A couple years back when prices stabilized and started inching upward, I started telling my “investors” to start buying. But some told me about all this stuff they were reading on the internet about the “Shadow Inventory.” I told them it was crap, but they didn’t listen. Cost them millions in potential profits.
Excellent article, Lisa. Comments from Mr. Rice & Mr. Merow are equally valuable. If I might second these points; a.) start small, don’t overshoot your resources, b.) if you do your own repair/renovation work, be sure the results are code-compliant, c.) if properties will be rentals, consider utilizing a professional property management company for screening, major repairs and rent collection.
Brent Kuhlmann