Real Estate Deal Mistakes You Should Never Make
Investing in real estate provides you with a great opportunity to passively generate income while significantly increasing your personal net worth. 90% of the world’s millionaires point to real estate investments as the most important part of their portfolio. Knowing how to execute a great real estate deal not only improves your own net worth, but it also sets you up for better financial security for your children and future heirs, ensuring that your own legacy is that of a successful individual. However, if you’re going to invest in real estate, there are some common mistakes that you should be sure to avoid making.
Failing to Plan is Planning to Fail
If you find a great deal on a potential investment property but don’t have a plan about what you’re going to do with it, there’s a good chance that your investment will fail. Finding a property and then making a plan is a recipe for investment disaster. For instance, if you’re going to buy a property to flip and sell for a profit, you may want to use better materials in a property rehab than you would if you’re going to rent the property. Have your plan in place early about what you’re going to do with the property and how much it will cost. Be committed to that plan and build your entire investment strategy around it.
Failure to Research the Area
The three most important aspects of any real estate transaction are location, location, and location. That old adage has been at the heart of everything that real estate investors have done for years. As an investor, you need to be informed about the area that you’re considering purchasing an investment property in. Basic information can help you decide how much money (if any) you want to tie up in the property. For instance, is the area’s population growing? If not, investments are much riskier. Are the people who live in the area renting homes or purchasing them? Again, that type of information dictates what you’re going to do with the property and that decides how much money you can tie up. Be informed about the area that you’re considering an investment in.
Doing Everything on Your Own
One of the most appealing aspects about real estate investing is the chance to basically work for yourself. Additionally, many investors think that working completely on their own makes the idea even better. However, unless you have experience in all of the different areas of real estate investing, failing to surround yourself with a good team can lead to disaster. For example, maybe you can find a good investment property without the assistance of a real estate agent. Once it comes time to renovate the property, are you a good enough carpenter to do that on your own? If the end result doesn’t look good, the property will be much harder to rent or sell. Instead of tackling the entire process on your own, identify the areas that you’re lacking in and surround yourself with people who can pick up the slack.
Not Shopping Around for Financing
Even if you have the cash that you need to obtain a property and do any renovations necessary, it’s a good idea to shop around for financing options. There are cases where leveraging funds (another term for using debt) can be a better idea. If you decide to obtain a mortgage or another type of outside funding, be sure to shop around. Talking with different lenders can give you a better idea about different loan details. Being able to get bet amortization rates and other loan details can allow you to keep more money in your pocket throughout the life of your investment.
Being a successful real estate investor doesn’t mean that you’ll never make a mistake. Instead, it means that you have the funds necessary to recover from those mistakes. However, knowing some basic mistakes to avoid can help you better position yourself for success long-term.