By Eric Worral
We all make mistakes when we are learning about something new. The adage goes something like this: “If at first you don’t succeed, try, try again.”
In the world of real estate investment, however, every mistake made can be costly. Every real estate investor is going to make mistakes throughout their career, but that doesn’t mean that they shouldn’t try to avoid making them when possible.
Fresh, new real estate investors have the biggest opportunity to avoid mistakes like these five common business errors. Here’s how you can avoid falling victim to one of these common real estate mistakes.
1. Bad Location
As a fresh investor, you’re likely to be looking for an inexpensive property to begin with. And while it’s great to find a property that fits in with what you can afford to finance, you need to pay more attention to location than anything else.
An average property in a good location can still attract renters.
A stunning property in a bad location will struggle.
No matter how well you advertise, how beautiful a home is, or how little you spent on it, investing in locations that are not renter-friendly as a new investor is a huge mistake. Always do extensive research on what areas renters are looking for before purchasing any property.
2. Market Downturns
Another big mistake that many new real estate investors make is not preparing themselves for market downturns. No matter how well the market is doing when you start working on a new investment, it’s a simple fact that eventually, the market could take a downward turn.
Do you have the financial backing available to you to handle a down market?
Do any of your backers or investors have any protections in place to prevent a change in markets from halting your real estate investment work?
While it can be hard at the beginning, it’s important to always have enough backup funds available to complete a project even if there are big changes in the market. Sometimes, big market changes will require you to keep a property for longer than you intended, so you need to be prepared to pay the additional expenses that would be required in that situation.
3. Spending Money
Many real estate investors who are still inexperienced believe that they need to hold on to every single penny, spending the bare minimum to ensure that they turn the biggest profit possible.
While it is true that you should be logical about where you spend your money, it’s also important that you reinvest your revenue to continue growing your business. Something as simple as spending extra money to ensure you get good tenants is worth the investment.
If you don’t put any additional money into a project, you cannot expect to get any more money out. As a real estate investor, spending more money on better location, higher-quality renovations, and better advertising can increase your profit margin immensely.
4. Contractor Issues
A large portion of your work will rely on other people, and that can be a scary thing for investors. Finding good contractors for your projects is a must because contractors will control the timeline, quality, and, ultimately, the cost of your project.
If you have to waste time going through multiple contractors for various parts of the job, you’re going to lose money.
Make friends with other investors in the area and utilize online review sites in order to find reliable and affordable contractors. Keep a running list of your preferred companies, and be sure to create a strong relationship with your favorite contractors so that each project will go better than the last. It’s also important to have a good real estate attorney on hand to help with those complicated contracts or legal questions that might pop up.
5. Valuation Errors
As a real estate investor, a huge part of your job is to understand resale value, rent value, and other property-related valuations in your target area. When you take on a market area that is too large and varied or don’t do enough research, you can seriously under or oversell yourself, cutting into your profit margins.
You can avoid valuation problems by doing a few different things:
- Limit the area you work in so you can become an expert.
- Do weekly research about costs in the area using MLS, Zillow, and other sites to find out what the going valuations are.
- Hire local or professional experts to help conduct this research.
- Take classes to become better at valuation.
While all of these things take additional time, they will prevent you from making huge valuation mistakes that can affect your bottom line for months, if not years.
Don’t Be Mistaken
Although these tips will help you to avoid some of the most common mistakes made by real estate agents, you will still make mistakes. And that’s okay! The key is that you do not repeat mistakes. Instead, focus on figuring out why you made a mistake, and don’t let it happen again. That is the true key to success!
