Real estate investment has long been a valued way to invest your money. While it is not a “sure thing,” it typically is more stable than riding out the stock market or short-term investments. Real estate investment requires time, a financial plan, and the heart to see a project through. Not every investment will work out, but in the long run, it will be a rewarding investment for you and your family.
However, before you get started, check out our list of the 10 common mistakes real investors make.
- Make sure your mortgage or financing is exactly what it needs to be. If you plan on flipping your investment, make sure to keep your term short (which could mean a higher interest rate), but it will keep your payout penalty lower. Also see if your lender has a good product that is transferable from one property to the next.
- Timing is everything. Before you even think about making an offer on a property, you need to have your financing pre-approved so you know what you can afford to buy and can make sure that if your offer is accepted, you can turn around move fast to secure the property.
- Know what taxes are involved. Are short-term or long-term capital gains applicable to your profits? Partner up with a good accountant who can advise you on this tricky side of a transaction.
- Guess what? Real estate investing is a business and businesses have expenses. In this case, those expenses are your transaction costs (i.e. real estate commissions, mortgage payouts if necessary, lawyer fees on both sides of a transaction). Make sure to add these costs to your budget.
- Don’t do this alone. While you are likely talented in several ways, you aren't in all of them. Build your perfect team from real estate agents to lenders to lawyers to trades. While you may be able to do some of the parts, you can’t do them all well and it could end up costing you the perfect property.
- Real estate investing is not a quick and easy way to make money.
- Don’t overpay for a property. That initial cost will only eat into your final profits.
- Renovations are notorious for taking longer and going over budget. Make sure you find yourself a good home inspector whose opinion you trust and somebody you know will tell it to you straight. If the list price is too high and the renovations are too extensive, walk away.
- Don’t defer your maintenance. Like with transaction costs, your maintenance budget is something that is absolutely essential to ensuring your success. Without having a well-educated idea of your maintenance schedule and costs for each of your properties, you will find yourself in a mess with too many unexpected expenditures. By creating a schedule and setting aside a rough amount for each item, you will take the sting out of maintaining your properties.
- Learn to the play the market. You will see highs and lows, and you need to figure out what your perfect game looks like. You will get a feel for what “perfect timing” means to you.