Real estate investment is an exciting field, with many opportunities to gain a hefty profit. However, as with all transactions, there are many risks involved. Careful consideration of all details will help you make profitable investments and avoid making potentially disastrous decisions. In particular, take note of the 5 most common mistakes real estate investors make:
Failing to Account for Transaction Costs and Capital Expenditures.
Many investors neglect to calculate these two significant costs into the purchase of a property. In real estate, transaction costs are relatively high (often hovering around 10% of the price of a property). Other one-time expenditures often go unaccounted for, or swept under the rug, but replacing appliances or updating infrastructure can take a serious toll on your budget.
Assuming Value Will Appreciate.
Some people assume that real estate investment is always a safe bet because the property will simply increase in value over time. This is not always true. The real estate market is complex and subject to fluctuations. Extensive research is needed to judge the likelihood of appreciation.
Going in to an investment without a Plan B is a recipe for disaster. What will you do if you can't resell it quickly? Or if you can’t find suitable renters? Having a backup plan (or several) is imperative for a successful investor.
Doing it Alone.
Too many people try to do it all: purchase, improve, clean, advertise, rent, and resell. In a transaction as large as a real estate investment, you need to work with a team you trust. Research inspectors, plumbers, and electricians you can trust. You won't be able to do it solo.
Buying Without a Plan.
The worst mistake you can make is to buy a property on a whim and assume a plan will follow. Potential is great, but research is much more important. If you find a property that interests you, look into the market in the area and into the neighborhood. Consider likely and potential scenarios and prepare yourself for what you're truly getting into.
If real estate investing was really that easy, everybody would be doing it. By being aware of these common mistakes you will avoid many headaches and lost income down the road. Most (if not all) obstacles can be circumvented with due diligence and homework before the contract is signed.