You’ve made the decision to invest in real estate. You’re excited to get started, but you’re worried that you may make a mistake that could cost you big time. Because you’re new to the game, you’re sure to make a few blunders, but you can avoid these common mistakes when investing in real estate.
1. They Don’t Have a Plan
One of the biggest mistakes that new real estate investors make is failing to make a plan. You know that you want to invest in a single-family or multifamily property, but do you have an investment strategy? What will you do with the property after you’ve acquired it?
It’s easy to get swept up in a buying frenzy, especially in a hot market where you feel you have to jump on every opportunity. But it’s important to resist that temptation.
Come up with a plan first, and then find a property that fits into your plan. Going in blindly is a recipe for disaster.
2. They Don’t Do Their Due Diligence
Before you buy a new car or even a new TV, what’s the first thing that you do? Research. You probably read through dozens of reviews first. If you’re buying a car, you take it for a test drive.
With real estate investing, it’s important to do your due diligence, or research, first. Real estate is a major investment. You don’t want to make such a big commitment without first knowing whether it’s a sound investment.
There are several things you’ll want to check before you decide to purchase a property:
- Visit the property at different times of the day and different days of the week. This will help you get to know the neighborhood.
- Make sure that you get a formal inspection performed by a licensed professional.
- Crime stats. Use a site like SpotCrime to view recent crimes in the area.
- Sex offender list. Use the U.S. Department of Justice’s National Sex Offender Public Website to search the address.
- Encroachments. If there are any, these should be remedied before you agree to make the purchase.
- Get repair quotes.
- Get a formal appraisal.
- Prepare a cash-flow analysis.
This list is not exhaustive by any means, so there may be other things that you’ll need to check during your due diligence period.
3. They Invest in Risky Properties
You find a single-family home for sale. It’s available for a great price. But it needs a lot of repairs, and you’re still not sure whether the location is great. The low price tempts you, and you pull the trigger. The property turns out to be very costly to repair, and you have trouble keeping tenants around.
It turns out to be a bad investment.
In this case, the person made a few mistakes. The first was giving in to emotion. It’s important not to let emotions get the best of you when investing in real estate. Make decisions based on logic and research. That’s the best way to avoid investing in risky properties.
Investing in a single-family property may have also been a mistake. That’s not to say that all single-family properties are a bad investment (they’re not), but multifamily properties, especially for beginners, are often less risky.
Investing in real estate is exciting, but it’s important to go into your investment with a level head. Do your research, avoid risky properties and make sure that you have a plan.