Real estate investing can be an excellent way to set a steady stream of passive revenue, but just like anything else in life, mistakes can be made. Some of these mistakes can be as simple as failing to plan or learn everything you can about real estate investing, while others are more complicated like spending too much on renovations. However, if you ask real-life investors these are the real estate investing pitfalls you need to avoid when getting into the business.
Real Estate Investing Requires Starting out Right
The first real estate investing pitfall has to do with simply beginning. Some investors fail to begin at all because it can seem like a daunting task. However, oftentimes the most difficult things are the most rewarding, and real estate investing is no different.
Some people who are interested in real estate investing never start because they aren’t confident that they will be able to turn a profit. Others are afraid to start because they don’t know much about it, or they’re afraid of losing money and failing. However, success can never be found if you don’t try. Not even getting started means missing out on many opportunities and the ability to achieve financial success. Investors who know what success would look like and mean for them will find it easier to get started.
In addition to getting started, it’s also important to plan. Diving into real estate investing without planning ahead could ultimately lead to failure. In this case, fear of failure makes perfect sense because, as it’s been said, failing to plan is essentially planning to fail. Investors should never just wing it and hope for the best or rely on luck to carry them through. Part of just getting started is starting well, and starting well requires a plan before diving in.
Have a Strong Team Around You
Another important aspect of real estate investing has a strong team. No investor should plan on doing everything on their own without help. Real estate investing requires a great deal of knowledge across multiple fields, and you can’t hope to be an expert in all areas of the process.
For example, a real estate agent will be able to help you identify and purchase properties that are ripe for investment and profit. Most investors require some financing because they don’t have the entire purchase price for properties upfront, so a mortgage broker can help line up financing with attractive rates and terms.
You will also need an accountant and property manager. Other possible team members may include an architect, interior decorator, contractor, and photographer, depending on the condition of the property you purchase.
Having a strong team is essential to success in real estate investing, so it’s important to not only have team members but also be careful in your selection of them. The team is only as strong as its weakest member.
Make Wise Choices and Learn Continually
It’s also important to take the time to fully understand the real estate investing process. Some investors follow their gut, which can be OK, but without proper planning and research, it can also be a disaster. Some investors also get emotionally attached to a particular property, and they can’t admit it to themselves when they make a mistake and buy an unprofitable property. However, numbers don’t lie, so you should always temper emotions and gut feelings with hard numbers and data. Real estate investing requires the use and analysis of many different kinds of data, including demographics, data about the property, projections for rental prices, key trends, cash flow, and more.
The longer you invest in the real estate market, the more you will learn, so you should always be on the lookout for what else you can learn. Odds are, you buy your first property without knowing a lot about the market, but there should be a great deal to learn about the process by simply diving in. Even with a decent amount of knowledge about real estate investing before you start, there are still some things that can only be learned by doing.
Of course, learning by doing can be very expensive, so the more you can learn before you do anything, the better off you will be. As you start to study real estate investing, you will realize that there is plenty of information out there, but not all of it will be good advice. Some of it will immediately seem wrong, while other lessons may be learned the hard way. The best course of action is to be cautious but vigilant in watching for opportunities.
Don’t Spend Too Much on Renovations
One thing that you should learn very quickly is how much you should spend on renovating the properties you purchase. Some investors buy properties to flip, while others buy them to rent them out. No matter which strategy you are following, you should always have a budget for renovations before you even purchase a property. Sometimes renovations will go over budget, but the more common problem is that there was never a budget to begin with.
The key is to avoid spending on renovations that won’t bring you any benefit. If you’re buying the property to rent it out, you must know how much you can get monthly based on factors that don’t include renovations. Some renovations may be needed to make the property attractive to renters, but others just won’t bring enough additional rental income to be worth the extra expense.
Learn Patience and Aggressiveness
Finally, real estate investing always runs in cycles. Sometimes market conditions require patience, while other times, they present opportunities to be aggressive and turn a hefty profit. Knowing the difference between these types of market conditions requires experience and determination. In situations such as these, those gut feelings can be helpful, but you should always make sure that data is on your side before you take the leap.
Successful real estate investors are alert to the temperature of the market and potential opportunities. They know when conditions are such that opportunities will be rare and difficult to find. In such cases, it becomes even more important to be ready to move as soon as an opportunity does present itself.