Real estate investing is one of the biggest business and investing crazes of the century. Prominent investors often use real estate to diversify their portfolios. It’s also a stable, profitable venture that beginning realtors can use.
But it’s not as easy as many get-rich-schemers would have you believe. Real estate investing is a complex business that requires your focus and determination for success. If you’re jumping in, don’t make these common mistakes.
1. Too Little Cash Flow
Cash flow problems are common for businessmen and investors.
“Investment properties all too often fail because they don’t have enough capital to keep going,” says an article from Green Residential, experts in investment property in Houston. “In fact, roughly two out of every ten Americans will purchase an investment property, but half of them will be up for sale again sometime within the next five years, because the owners couldn’t generate enough profit out of the property to make it worth their trouble.”
One of the best ways to combat cash flow problems is to begin your investment with a business plan. This document will outline your financial plans and processes. It will also help you budget your resources. This way, you won’t dive into a venture unless you know you have enough cash to keep it going.
2. Letting Emotion Get the Best of Your Decisions
You can’t purchase an investment property because you fell in love with it. Emotional decisions could land you with real estate that doesn’t yield profits.
“Emotions can cloud our judgment and influence our decisions when triggered by the situation at hand… Research shows it is also possible for emotions triggered by one event to spill over and affect another, unrelated situation,” says Francesca Gino of The Harvard Business Review.
Carefully extricate your emotions from your decision-making to avoid calamity. Emotional connections can easily bleed into all of your business decisions, making it difficult to find success.
3. Expecting Overnight Riches
You might have become interested in real estate property because you heard a radio commercial promising your quick wealth. Unfortunately, this is not usually the case.
“Getting rich overnight won’t happen . . . (regardless of what a number of the so called ‘experts’ tell you),” says Bill Manassero of BiggerPockets. “It takes time, hard work and knowledge of real estate investing to do it with maximum return. The important thing to remember is that YOU can do it. You can join the millions of investors who generate sizable incomes by investing in real estate but be patient and prudent.”
4. Not Using a Team of Real Estate Professionals
A good investor will put together a team of professionals in both business and real estate. They’ll help you navigate the legalities and paperwork of a stressful real estate contract. Their professional opinions and insights will help you make smart decisions in your investments.
“Relying on representation about a property’s condition when investing may not always work out favorably,” Sohn Shah of InstaLend told Forbes. “Having independent reviews by licensed professionals can allow you to validate any representations about a property’s condition. For example, an inspection report or an appraisal before buying a property can provide an independent opinion on the potential risks that need to be addressed.”
Risk-management is often one of the most difficult pieces of real estate to handle. You’ll be grateful you have a strong team to back you up.
5. Too Much or Too Little Renovating
Real estate in poor condition is unlikely to make a profit and will require a little renovating. Deciding the correct amount of renovations can be tricky. Too much will unnecessarily cut into your profits and too little will challenge your ability make a profit on a property. Focusing on the appropriate renovations for your neighborhood is a good place to start.
“Regardless of the condition of the property, understanding the scope of the renovation is a bespoke analysis that requires focus,” says Dennis Cisterna of U.S. News. “Investors may find themselves in a difficult situation when they renovate beyond what the market dictates. If all the homes in an area have tile countertops, adding granite countertops probably wouldn’t be a worthy investment as it wouldn’t cater to the typical renter or owner in that neighborhood. This could limit the return on investment by only having a marginal impact on the rental rate or sale price.”
Overall, a real estate investment can only be successful if you’re using all the tools available and avoiding mistakes commonly made in real estate. As you arm yourself with the skills necessary to overcome these challenges, you’ll add your name to the list of successful real estate professionals.