The Ten Big Mistakes Novice Real Estate Investors Make
Buying real estate is as popular as ever, and it seems pretty
straightforward at first glace. With mortgage interest rates at moderate
low and plenty of real estate to buy, many real estate investors truly believe that
they can do a bit of cosmetic work, accessorize a bit, and then put up
the for rent or for sale sign. Unfortunately, it is not quite that easy
and there are some common mistakes that can be avoided if one plans
ahead and truly understands what he or she is getting into before investing.
Don't Fall In Love
The first rule of thumb when you are investing in real estate is that
you cannot fall in love with any one property. When you are looking at
real estate to buy for investment purposes you can't think like a
homeowner, you must think like a business owner. Don't think about what
you like about a home or a piece of real estate, think about how well it
will sell or rent in the current market.
Not Exercising Due Diligence
When you invest in real estate you can't simply invest if the property
looks good at face value. A very thorough inspection of the structure
needs to be done as well as research on the local market. One must also
look into the vacancy rates and average rents for homes or structures
that are comparable. A diligent business owner will also look into how
the neighborhood is zoned as well as any regulations that will apply to
the rental property. You will also want to check into how many other
rental properties are in the area and if they are comparable to the
property you are looking at.
Investing in Obscure Areas
Generally, it is not a good idea to invest in properties that you cannot
visit regularly. Long distance real estate investments leave you out in
the cold and you may have no idea what is going on in or around your
property. It is a good rule of thumb to only invest in areas that you live.
Paying More than the Property Is Worth
New real estate investors often do not do the proper research and end up paying more
for a property than it is worth. When you are investing you have to
think about yourself, even if that means that you have to low-ball the
seller at first. Investing in real estate is all about getting the right
price for you. You need to know that you can cover your mortgage and
your expenses from a rental payment, so really consider what the local
market will allow.
Believing You'll Secure the Lowest Mortgage Rates
Television can be very deceiving for those that are in the real estate
investment business. The low mortgage rates are not offered for just
anyone, they are for owner occupied homes, which are considered much
less of a risk than a unit that is rented out. Homes that will not be
owner occupied will experience mortgage rates that are 1.5 to 2% higher,
which can make for a huge difference in monthly payments for the
real estate investor and his or her tenants. You also need to be aware of your
credit, if you have terrible credit you won't have much luck getting a
loan, but the better your credit is the better your rate will be.
Forgetting the Rule about Time and Money
Many new real estate investors forget that all home improvements are not as cheap
and as straightforward and they hoped that they would be. The rule that
most real estate investor's use is that it will take twice as long and three times
the money than you would think to ready a unit for rent or sale. Real
estate isn't transformed over night, so one must plan accordingly.
Failing to plan ahead for this can leave you in a real bind where you
lose money because you don't have the resources to complete a project.
Failing to Look into the Competition
It's a good idea to look at the competition, especially if they are
successful. Lower payments, exciting features, and more will often help
fill rental units. Pay attention to what works in your area and
duplicate it if possible.
Failing to Pre-Screen Tenants
Many new landlords are so anxious to get their new tenants moved in that
they forget all about screening them to be sure that they have a
relatively clean credit history, they are gainfully employed, and that
they have a good rental history. While screening tenants can take a bit
longer than you might like to wait, it's easier to get this done than to
try to evict a tenant. It's always better to pre-screen than deal with
the headaches later.
Breaking Your Own Rules
New real estate investors often set business rules for themselves, and then
occasionally they get a bit soft. If you have established rules about
what day the rent is due, pet policies, waterbeds, or lawn care, stick
with those rules. The minute you stop obeying your own rules you set
your self up for disaster. If you stick to your rules and you refuse to
break them no matter the situation, you will find that you are much more
successful in a business sense.
Not Acquiring Enough Insurance
Being under insured is a common mistake of new real estate investors.
You need to know that your insurance company will cover accidents on the
property as well as damage due to fires or natural disasters.
As you can see, there are a lot of mistakes that you can make. Luckily,
if you plan ahead and do not rush into real estate investment you can
avoid a lot of these pitfalls, saving you a lot of time and money.
Avoiding mistakes will help you become a much more successful real
estate investor.
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