Real estate investing can be a rewarding but challenging endeavor. People who go into real estate thinking it’s easy are bound to have unrealistic expectations. Knowing where the pitfalls lay helps one avoid costly mistakes.
Many new investors buy property without a plan. They assume that the property market will always be hot and that buyers or renters will eventually come if they build it. Smart investors trust data, not their instincts. They perform proper market research and uncover a property's hidden potential and what they can do with it before purchasing it. They consider a property’s actual value and untapped value.
Acquiring a property means assuming all the costs and expenses involved with it. Sadly, beginner investors fail to factor in all costs and expenditures. Some costs, such as transaction fees, can exceed 10 percent of the property’s purchase price.
The costs of acquiring and owning a property can eat into the profit margin. Having an accurate picture of the expenses one might have to deal with in acquiring and owning a property helps avoid surprise costs that might wipe out the anticipated profits. This is especially so when acquiring a property needing updating. It helps prevent cost overruns.
Not all properties go up in value all of the time. Even if the property market is on an uptrend, there are different market dynamics unique to the types of properties.
Successful real estate investors understand that the property market is complex and requires proper local market research. The technique is to map out the key market drivers for the property one wants to invest in. Talking to experienced investors, one’s target market and are, and people who’ve successfully invested in the type of property helps. Seasoned investors know what to look for and where to look.
The property market can be volatile. Many investors fail to prepare for such eventualities. They believe all they need to do to be successful is purchase the right property at the right price, and they fail to plan for the exit.
Smart investors understand that exit strategy is as important as acquisition. Factors determining one’s exit strategy include one's current financial situation and goals. Preparing for long vacancy periods or difficulty in finding a willing buyer helps avoid panic decisions.
Real estate investing demands several skills, and no one can be an expert in all of them. There’s the buying and reselling part. A buy-to-let property requires different skills than a buy-to-sell one. Trying to be all things is a huge mistake, and it's one most beginner investors make.
The key is to identify which role one’s best suited for and then hire help with the other aspects. After purchasing a property requiring updates, for example, a wiser move would be to hire a professional to help instead of trying to go the do-it-yourself. The cost of hiring a professional property inspector pales in comparison to the cost of missing certain property damages.
There are several moving parts to real estate investing. The financial, legal, and logistical considerations can be overwhelming, even for a seasoned investor. They understand that each deal is unique, no matter how many properties they've bought and sold. That’s why smart investors never go it alone. A professional helps identify blind spots and uncover potential pitfalls.
