If you're new to real estate investing, there are a few common mistakes you should know about. Being aware of these pitfalls could save you a lot of time and money in the long run.
Looking for the Perfect Deal
The "perfect deal" is that house that needs little work, is purchased at a ridiculously low price, and sold for a huge profit. The :"perfect deal" lure is enticing. Sorry honey, but there's no such thing. And if you "accidentally" run into a deal that falls perfectly into place, it's a safe bet it'll never happen again. To avoid this time waster, approach each deal by knowing exactly what it’s costing you so you can make a profit (even if it’s small) and then go on to the next investment property.
"Real Estate Will Always Appreciate" Thinking
I can tell you first hand, that the housing market can fluctuate wildly, and houses (even in new subdivisions) don’t always appreciate right away. Not long after buying our first house in 1982, the stock market crashed. The value on our newly built house (less than five years old at the time) dropped to a third of its original value. It was another twelve years before houses values in that neighborhood rebounded to the point where we could sell at our original purchase price. That house is now worth about 15 to 20% more than its 1982 value.
Using Your Own Money or Credit to Finance the Investment
There are some big “ifs” with this one. Use your own money or financing:
If you have a buyer lined up.
If you are certain of a profit at the end of the flip.
If you can pay off the loan within a short period of time.
Not having everything neatly tied up with a bow could cost you. If you can’t sell the investment property right away, you’ll be making house payments until it does sell, which could be months down the road. Can you afford it? The best way to avoid this mistake is to use investors for financing. Yes, you will have to pay them back, but any profits from the sale of that property and future properties can help take care that debt.
Failure to Plan
Failure to plan means problems that should have been foreseen will show up on your doorstep when you least expect them. And they’re usually expensive. Planning means knowing what needs to be done, by a specific time, and at a specific cost. It also means arranging for enough money to cover those costs plus a little more for those contingencies out on your doorstep.
Getting Advice from the Wrong Sources
It’s tempting to ask friends, family, and co-workers for advice on the best properties and the best improvements. But, unless they are experts in real estate investing, their advice could have you spending too much for a property that isn’t worth the value or on upgrades that are too high-end for the neighborhood. Avoid this mistake by consulting a real estate broker instead.
Buying Property Without Investigating Its Value
The temptation here is to buy a home at a price that’s much higher than its true value because it is in a neighborhood that fetches high prices. Do you r homework by looking up the appraisal value on the house. You may find that it is worth significantly less, in which case you could save a lot of money on the purchase price, which translates to a greater profit, even after repairs.
Picking the right investment property can sometimes be a tough decision. At White Picket we make it easy to buy or sell your house fast! Call or come by and visit us today.
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