Starting a real estate investor career is challenging. Expertise is achieved with years of experience, and to get to the point when you can proudly say that your real estate investments are bringing you a ton of money you must undergo a process full of mistakes, setbacks, and wrong decisions. Becoming a professional real estate agent who takes pride in successful investments takes time, knowledge, determination, and skill.
However, becoming aware of the mistakes you should avoid will give you an advantage in your career path. So, in this article, we will cover the seven common mistakes that you should avoid if you want to become a successful real estate investor.
Mistake 1: Not Starting with a Plan
Whatever you do in life, you need to have a plan. The same goes for becoming a professional in the real estate industry. You don’t want to buy a house and not know what to do next or how it will generate income or gains. Sometimes, it is hard to resist purchasing a home that seems perfect, but you need to know what you will do with it next. So, step back and make a plan guided by the current trends in the market and start on a solid foundation.
The most essential thing in the initial plant is to decide on your investment strategy. Are you buying a house and apartments or looking for a single-family or multifamily property? Are you thinking about vacation rentals? Or, is your mind focused on mixed-use, commercial, or office buildings? There are so many options, so you need to figure out which type is the right for you. Then, figure out the purchase plan and start looking for such properties.
Mistake 2: Not Researching Properly
Let’s take an example from everyday life: If you want to buy a mobile phone, you would compare different models, ask a lot of questions, and read a lot of reviews in order to determine which model will be the best fit for you. The same goes for buying a property; however, you should do even more extensive research as the cost here is much higher.
Buying the property is not the only thing that you should do. Plan in advance and do some research regarding each type of investing, whether you want to be a personal homeowner, a future landlord, a flipper, or maybe a land developer.
The research should cover a lot of questions about the property you are interested in buying and the neighborhood in which it is located. Questions will give you insight into what target audience you should look for in your marketing efforts. Here is a list of some questions that first-time investors should ask regarding their research process:
- Is the property near a commercial site, or there will be construction events soon?
- What is going to happen with the neighborhood in the upcoming years?
- Will the areas see significant changes in terms of demographics or household types?
- What kind of an area is the property located in? Is it a flood zone or are there any other problematic factors?
- Does the house have a foundation or permit issues? What is the priority to be changed in the house?
- What is the key reason why the house is being sold? How much was the house worth for the previous owners?
- What other facilities are close to the property?
Mistake 3: Going on the Journey Alone
Doing everything on your own is a mistake that many real estate investors make. You should always think of who can help you down the road if unexpected situations come up. Therefore, as a real estate investor, you should have a network of professional connections and experts who can help you make the right decision and execute a plan. Among those contacts, you should have enlisted the help of a savvy real estate agent, a competent and unbiased home inspector, a handyman, a reasonable attorney, a reliable property manager, and an insurance representative.
Mistake 4: You Don’t Think Locally
Real estate investing is all about thinking local. All your decisions must be related to the location of the property you’re interested in purchasing because only in that way will you be able to see a profit. The rules, regulations, and trends that apply to different locations differ. Also, the demand from one geographical area differs entirely from another’s. So, think locally and act locally.
Mistake 5: Neglecting Tenant’s Needs
If you plan to invest in the rental real estate business you need to keep the tenants satisfied. That is priority number one. If you are overlooking tenants’ needs, you won’t be able to make a profit. So, dive deep into who your renters are likely to be (are they singles, couples, young families, or college students) and make sure their needs are met. Try to match your investment to the kinds of tenants most likely to rent in that area.
Mistake 6: Getting Poor Financing
A bad financial plan is a bad plan in general. Explore your options to see what kind of mortgages you can take advantage of. Different types of mortgages might seem favorable initially, but later, when the price and the interest rates rise, you’d have to pay a lot more. This is the case of adjustable-rate mortgages or interest-only loans. The wisest idea for a first-time real estate investor is to start out with a fixed-rate mortgage or pay cash.
Mistake 7: Paying Too Much
This mistake is related to the research one, because when you are searching for the right property to buy, you must also consider the price factor. But, as it is one of the significant issues that can pose severe challenges to the property acquisition process, we are outlining this mistake as a separate one. So, if you find an appropriate house that meets your needs and wants, you will be eager to make a deal with the seller.
But, you shouldn’t hurry. If you hurry, you will tend to overbid on the property, and over-bidding on the house can have a domino effect of problems. You might take on too much debt and create higher payments for which you’ll need help. Consequently, you won’t be able to get your money back and make a profit shortly.
To prevent this, research and compare home prices in the local market, and, if necessary, talk to experts like brokers who can tell you about trends and realistic property prices.
Conclusion
If you want to be a successful real estate investor, you need to avoid the mistakes outlined above. You should always have a plan to start with and a strategy that you need to adjust along the way. You need to have a handful of people you can trust, each one expert in their own field, who will help you make informed decisions. Then, you will be able to say that you are on a good way to making successful real estate investments.