Real estate investment can be pretty lucrative. However, investing in real estate properties is a process filled with potential pitfalls, meaning that interested individuals should read up to minimize their chances of falling for them. Here are 10 mistakes that interested individuals should watch out for when starting out in real estate investment:
1. Bad Location
Generally speaking, people are supposed to invest in cheap properties in good neighborhoods. However, it isn’t uncommon for real estate investors to wind up buying properties in bad neighborhoods for one reason or another, thus putting some serious limits on their upward potential. This is particularly true because most real estate investors can’t do anything about the state of the neighborhood as a whole.
2. Misjudging the Value
Estimating the value of a property tends to be rather challenging, not least because it is such an inexact process. Unfortunately, someone who can’t come up with a good estimate either on their own or with expert help won’t be able to set a profitable price that will still enable them to get what they want in a timely manner.
3. Misjudging the Repair Costs
As stated earlier, real estate investors like going for cheap properties that they can fix up before they either sell it or rent it out. However, if they underestimate the repair costs, they could end up with a buy that proves to be unprofitable even if they manage to carry out their plans.
4. Misjudging the Operating Costs
On a related note, rental properties take a lot of time, effort, and other resources to keep running. As such, it is common for someone without property management experience to underestimate the operating costs, which can cause them to over-estimate the profitability of their rental properties.
5. Failing to Separate Cash Flow and Net Income
Speaking of which, interested individuals need to remember to keep cash flow and net income separate in their minds because the two tend to be very different things. Essentially, just because something is earning money, it doesn’t necessarily mean that said earnings are matched by the cash that is coming in. This is unfortunate because it is perfectly possible for a business to be a profitable but lack the cash needed to cover its own expenses, which is a huge threat for a wide range of businesses in a wide range of sectors.
6. Emotion-Based Investing
Emotion-based investing is always a bad idea because it makes it more difficult for real estate investors to see the reality of their situation. Whether they are feeling scared or enthused or something else altogether, real estate investors should always take the time to calm down before proceeding further.
7. Going with the Wrong Real Estate Investment Strategy
There are a lot of real estate investment strategies out there, which are meant to suit different people with different priorities. Without understanding the full range of what is possible, real estate investors could end up creating and following a plan that doesn’t actually suit their particular needs and circumstances.
8. Funding Pitfalls
Most people choose to finance their real estate investments using borrowed money to some extent. However, borrowing money comes with a wide range of potential pitfalls, which include but are not limited to going for high interest rates, going for variable interest rates, and going for mortgage options that are going to need interested individuals to refinance at potentially inopportune times.
9. Trusting the Wrong People
No real estate investment can succeed without the involvement of other people. As such, interested individuals should always put in the time and effort needed to make sure that other people can be trusted. Otherwise, they could wind up losing valuable time, effort, money, and other resources that will have a negative impact on their plans.
10. Not Learning from Personal Experiences
Ultimately, no one can become perfectly prepared for real estate investing by reading up on it. Instead, there is a lot of learning on the job that can be done, particularly since real estate investing is a living field that sees changes on a constant basis. Due to this, interested individuals should always be doing their best to learn from their experience because otherwise, they could be missing out on some excellent opportunities to make them better at their chosen pursuit.