Print this page

Avoid These 4 Common Real Estate Investing Mistakes 

Written by Posted On Friday, 15 September 2017 18:51

Real estate investing is a great way to build wealth – as long as you do it correctly. As with anything in life, doing it the wrong way can cause problems. Here are the top 4 mistakes new investors make when buying real estate. More importantly, you’ll learn what to do instead.

Mistake #1 Failing To Do Enough Research

Some new investors believe others when they are told that a property is a good deal. Others fall in love with a property when they see it. Still, others are told that they need to act fast or the deal will be gone. In each of these cases, the new investor buys the property without doing research. Without the right research, you can end up with a property that is not right for you.

Instead, do your research:

  • Know the condition of the property with a walkthrough and inspection

  • Know the prices of homes in the area

  • Know the client base for the area – who are the potential renters or buyers?

  • Understand the market in the area

Mistake #2 Failing to Know The Cash Flow

Sometimes new investors like a property and buy it without understanding the cash flow of the property. Just because a property can be rented, doesn’t mean that it will be rented or that it will be rented at a price that creates a positive cash flow. Additionally, if you don’t consider repairs, general maintenance, renovation, and vacancy rates, you could easily end up with negative cash flow.

To avoid this mistake, you will need to calculate the cash flow.

  • Know the income currently coming in for the property. If it hasn’t been rented before, know the current rent rates.

  • Determine the current vacancy rate for the area and your type of real estate investment.

  • Calculate the cost of needed renovations.

  • Calculate the costs of repairs and general maintenance.

  • Know the cost of insurance and taxes.

Be sure to be conservative in your projections of both income and expenses. Overestimating income or underestimating expenses can easily turn your cash flow negative.

Mistake #3 Paying Too Much Money

If you buy property for too much money, your ROI will not be as high as it could be. In some cases, you could end up with negative cash flow. When this happens, you won’t have the money for proper maintenance, which will reduce the value of your property. This, in turn, makes your ROI even worse.

To avoid this downward spiral, you should:

  • Do a comparative market analysis on other properties in the area to understand the prices in the neighborhood

  • Understand the market forecast for the area including job growth, interest rate projects, taxes, and inflation.

  • Be patient. Not every deal is the right deal. Don’t buy a property simply because you are in a hurry to get started.

Mistake #4 Making Future Assumptions

Some investors see the numbers but assume they can do a better job on the property. For instance, they feel they can raise the rents or have a higher occupancy rate. However, when they buy the property, they find that the numbers they were given were accurate, and they lose money.

Do not assume that the property will do better under your management. It may. However, it also may not. Always buy a property solely on the numbers you see before you.

By avoiding this four common mistakes, you will find that real estate investing is a great way to maximize your money. To learn more about finding the right deal at the right price, give me a call. I’d love to help you on your investment journey.

Rate this item
(1 Vote)
John Trautman

John Trautman has spent his entire adult life in real estate. Purchasing his first property at 23, he learned the process of flipping and real estate holding from the ground up. Real estate continue to be his passion while he spent eight years as an account executive and later a vice President for Washington Mutual in the mortgage division. Holding the position of President’s Council and several years of President’s Club, he learned the lending business from the mortgage office perspective and lender perspective. Throughout his life he has also been a small business owner, commercial real estate holder, property designer, and house flipper.

During the downturn, John followed the deal to Detroit, Michigan, where he invested in single family rentals and multi-family dwellings. Once his returns were realized, he moved quickly to Arizona to invest in another distressed market.

His passion for making a deal and real estate has lead him to create a hands-on real estate investment mentoring club called Real Estate Knowledge Institute

realestateki.com

Latest from John Trautman