Over seven million Americans, or 3% of the population, consider themselves real estate investors. These people buy and sell on a regular basis, often utilizing new property investment strategies at least once a year.
Another 8 percent of the population own at least one investment property but have no plans to buy more.
Some of these investors make money by renting out their property. Others purchased properties while the market was down or bought foreclosed properties.
Now they are waiting for the market to improve to sell. Still more buy properties, especially foreclosed properties, to flip for a profit.
Real estate investment is a lucrative business. But only if you learn to master some key property investment strategies.
Going into the business blind can lead to heartache and bankruptcy in no time. If you’re thinking about investing in real estate, there’s plenty to learn.
Some of the most important things to learn are not what you should do, but what you shouldn’t.
If you’re ready to figure out whether real estate investment is right for you and to hone your own property investment strategies, read on to learn the ten biggest mistakes to avoid.
1. Perfecting your property investment strategies after you’ve purchased a property
When a great real estate deal comes along, it can be tempting for new investors to snap it up right away.
To begin with, buying in this way usually means not researching the property or the area that it’s in. It also means not knowing whether you’ll be able to tackle any repairs needed on your own.
If you’re not familiar with the finances of buying and selling investments, you’ll likely overpay. Doing so means that you’ll be unlikely to ever see a return on your investment.
Return on investment is the name of the game. So when it comes to real estate investment, buying without knowing what you’re doing means that you’re losing right from the start.
2. Choosing properties based on anything other than smart finances
When you’re buying a house to live in or a store front to open your own business in, choosing a place that you love is important.
You might pay a bit more to get a home in the perfect neighborhood or a store on the perfect street. Return on investment may not be first and foremost on your list because you likely plan on holding onto the property for some time.
But when it comes to property investment strategies, return on investment is essential.
You shouldn’t be choosing a property you love. You should be choosing a property based on the value that it represents.
3. Not doing your research
Just because a property seems to be a good price doesn’t make it a great investment. Knowing the difference is all in the research.
Start by researching the neighborhood. You’ll want to look into the value of other homes of similar sizes and ages. Find out what other homes in the area have sold for recently.
Look into perks the home might have, which would allow you to sell it more easily to the next owner. Details like being in a good school district or near city parks may be attractive to buyers. Being located on a busy road or right next to a bar could be unattractive.
Plan to visit the home during at least two different times of day before you buy. You might notice that there is heavy traffic noise during rush hour. Or that the neighborhood is noisy at night.
Another good property investment strategy is to research the cost of any necessary repairs that the property needs. If you won’t be doing the repairs yourself, it’s a good idea to bring in a contractor.
Besides the major things you’ll need to research, there are plenty of smaller details that can be just as important.
For instance, if the property wasn’t foreclosed, it’s a good idea to find out why the seller is selling the property.
This can this help you figure out if the property has any major flaws. It may also give you the opportunity to negotiate a better deal if you find out that the buyer is eager to sell right away for one reason or another.
4. Investing in the wrong market
Property investment strategies differ depending on your goals.
If you plan to rent your property out to tenants, the strategy for choosing a property would be different than if you were buying a property to flip and sell.
You need to start by deciding what your goals are. Then, research what markets you’d like to buy into.
When it comes time to look at properties, keep your end goal in mind. Don’t let a good deal cause you to forget what your future plans are.
5. Not sticking to a budget
When you’re investing in real estate, you need to establish several budgets.
You’ll need a budget for how much you plan to spend on a property. You’ll need another budget for contractors, inspections, and real estate agents.
If you plan to do any repairs or upgrades to the property, you’ll need a budget for those as well. Once you’ve set your budgets, stick to them.
Going over budget on things like upgrades may seem like a good idea at the time, but if you do so too often, you’ll be less likely to see a good return on investment.
6. Financing poorly
Property investment strategies go beyond simply finding the right property. You also need to employ them when it comes time to land the deal.
Bad financing can ruin an investment.
Agreeing to a high-interest rate or a high monthly payment are two ways to finance poorly.
Another mistake is taking on too much personal recourse. Personal recourse is a lean against your personal assets. If this investment fails, you don’t want to lose your personal home or property as well.
7. Making repair decisions after you buy
Flipping homes, if done correctly, is a great way to turn a healthy profit. Some investors even make a living doing so full-time.
But one property investment strategy that these home-flippers know is that you need to make your big repair or update decisions before you buy.
By not deciding what major areas of a home you’ll flip or update, you’re likely to underestimate your budget. Overspending means sacrificing some of your profit.
You also need to do some research on what kinds of updates will increase the value of your investment.
For instance, a modern, updated kitchen might be a selling point in a higher-end market. But the added cost on the price of the home may be unattractive to buyers in lower-end markets.
8. Not doing your homework when hiring contractors
Not all contractors will get your job done effectively.
If you’re planning on doing any major construction work on your investment property, you need to choose the right contractors.
Luckily the internet makes this easy. You can look for reviews for the company and even the individual contractor.
Look for qualities like time management, meeting deadlines, and cleaning up after themselves.
Make finding these qualities a priority in your property investment strategies. Each will help save you time and money.
A bad contractor will cost you both and may mean you need to hire other contractors to fix mistakes and clean up the mess. This is likely to cause delays, make you miss deadlines, and put you over budget, leading to a loss of profit.
9. Not utilizing a due diligence period
When most real estate deals are finalized, they include a period of due diligence.
This is a time during which a buyer can get in-depth inspections planned. If a significant problem arises, the buyer has a chance to back out the deal before it goes through.
If you’ve ever watched any home-flipping shows, you know that some investors choose to buy as-is properties and don’t receive a due diligence period.
This kind of agreement often means a better deal on a home. But it can cost you big if a major repair is needed that you haven’t accounted for.
Take advantage of your due diligence period. Use it to bring in inspectors. Take a deeper look at your budget for repairs and updates.
Double check the research you’ve already done, and try to find other details that you may have overlooked. Now is the time to make sure that you are happy with your investment before you actually complete the sale.
10. Going it alone
If you’re new to real estate investment, one of the best property investment strategies you can use is to ask for help.
Choosing to shop for and buy a property on your own might save you a bit of money. But if you don’t know what you’re doing, you’ll be less likely to turn a profit.
Understanding the ten biggest mistakes that new real estate investors make can go a long way towards helping you make your first investment a good one.
But enlisting the help of a real estate expert can help you make sure that you are making the right investment.
They can help you find a property and decide whether it’s the right one for you. They can help you with your finances and with planning your budget. They can even help with construction plans if you’re planning to flip a property.