Working in real estate is one of the most likely ways that Americans can become millionaires. But new real estate investors should be aware that getting into the business poses risks. The mistakes outlined below are most common among new investors. You should do your best to avoid committing them.
Going It Alone
Most new real estate investors get into the game on a part-time basis, and there’s inherently nothing wrong with that. But when they try to do everything on their own, that’s when problems too often surface.
To be frank, many new investors don’t have a strong idea of what they’re doing. If they go it alone, they will probably make a lot of mistakes they would have avoided if they had worked with an experienced mentor or real estate team. It may be worth consulting a guide such as those offered by UK property investment companies which outlines tips for beginners.
If you try to do real estate investing on your own, the most common error is to underestimate by a substantial amount the time and money required to locate and maintain a profitable property. It takes a lot of effort and financial resources to keep track of everything that goes into keeping a property in suitable condition.
You should only go into real estate investing if you have a reliable and experienced team that you may depend on to maximize your profits. Start by hiring a skilled property manager to screen tenants, collect rent, and maintain your properties.
Neglecting Maintenance and Repairs
Many new real estate investors get into the business to make money but fail to ensure they have sufficient financial reserves up front in order to perform regular maintenance and cover repairs. If these facets are ignored, everything may go downhill fast, and your new investment property could cost you money rather than generate it.
Skilled investors know they have to set aside at least 2% of the value of the property each year to maintain it in its current condition.
Never forget that no matter how good you think the property is, surprises will always crop up eventually and cost you more than you expected. First-time investors often proceed on a shoestring budget, and when an expensive problem appears, such as a major roof leak, they are stuck with major bills.
Make sure you or your property manager walks the property at least once every month and looks for items that ought to be repaired or replaced. Being proactive means spending a little for repairs. If you wait and neglect them, you’ll end up paying much more.
Forgetting About the Numbers
In the real estate business, the numbers and a calculator should be your best friends. You have to keep careful track of the figures if you want to make money.
The most common mistake among new investors with regard to the numbers is they don’t do enough calculations about cash flow to identify the income they’ll get from the property. You should run the numbers multiple times and account for every possible expense before you acquire a new property.
You should just as carefully run the numbers on comparables in the neighbourhood to make sure you don’t overpay for the purchase. Spending too much on the house upfront can cripple you because the mortgage will be too high for you to make a decent profit.
If you can’t get the price that makes your numbers work, forget it. There will be more deals out there.
The real estate investing business is an excellent way to make a lot of money. But the trade is fraught with peril for new investors who don’t know what they’re doing.
Keep the above mistakes in the back of your mind to keep you on track if you decide to enter this exciting and rewarding industry.
