Thoughts

Pitfalls To Avoid When Investing In Real Estate

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Thanks to the glut of real-estate shows on television, as well as the mythical conception that it’s relatively easy to become a property millionaire, many of us are tempted to give property investing a try. After all, if the regular Joes on TV can do it, and if there is a fortune to be made, then why not dip your toes into real-estate?

There are various options open to you. You could make a profit by reselling a property through flipping or wholesale real estate, or you could buy-to-let, whereby you become a landlord/lady to tenants who have moved into your property. Profitable ventures all, and you could indeed stand a chance of making your fortune.

However…

Real-estate investing is not without its pitfalls, and we aren’t just talking about the sinkholes that might threaten to swallow your property whole if you invest in a property on less than shaky ground! Check out the following real-estate mistakes, and make every effort to avoid them.

Pitfall #1: Assuming real-estate investing is easy

Erm… no, it’s not. You should know this already, of course, because if you have ever bought a property to live in, you will appreciate the stresses and strains that come from applying for mortgages, dealing with sellers, coping with maintenance issues, and navigating the ups and downs of the housing market. Therefore, don’t give up your day job just yet. Talk to experienced real-estate investors, read the essential books on the subject, and speak to a realtor for professional advice. After buying your first couple of properties, real-estate investing will get easier, but especially as a beginner, there is a lot you need to learn before diving in. Be sensible then, and do your research. You can begin this on our website, so read our getting started tips to put you on the right track.

Pitfall #2: Buying in the wrong location

When it comes to real estate, the location of your property is mightily important. If you buy in a location that is guaranteed to attract other buyers or tenants, then you will quickly make a profit. If you buy in a location that nobody is interested in, then you stand to make a loss. So, by the ‘wrong location,’ we are talking about places in an economic recession. We are talking about places that have few or no major amenities. And we are talking about places that are unsafe, be that because of crime or because of natural weather risks, as just two examples. So, here’s the thing. If you spot a bargain property, beware. The price might be low because the location is less than popular, so do your research, starting by walking around the areas you are considering and getting a proper look and feel of the location in question.

Pitfall #3: Foregoing a home inspection

Do you want to know another reason why some properties are cheaper than others? It’s because of the state of the property in question, as if you’re not careful, you might end up with a money pit on your hands. Even if you’re planning to fix and flip, you might still have to pay way more than you bargained for when renovating the dump…erm… we mean old property that you have in your possession. Therefore, before signing your name on any contract, pay for a home inspection. You will then get a handle on any repair jobs, big or small, and will have the option of walking away if you don’t like what you see or hear. As a guideline, these are some of the money pit signs you need to look out for yourself, some of which will be obviously noticeable to you, but still get a home inspection for a professional overview. Not only will an inspection be of benefit to you, but especially when buying to let, you want to make sure the property is safe to live in for your prospective tenants.

Pitfall #4: Not budgeting your money

Okay, so you might have found a property you can afford. Wahey! And you may well have found a lender willing to give you a mortgage – beware our mortgage myths – but your spending doesn’t end there. You also have home insurance costs, taxes, upfront repair bills, conveyor fees, and ongoing maintenance fees if you’re renting out the property. These are just a few of the expenses you will be expected to cover; there are sure to be more that we have forgotten to mention! So, before you make a downpayment on any property, ensure it makes sense to do so. If you stand to lose a lot of money from the purchase, think again. Yes, you might make a profit down the line, but you have your immediate financial standing to consider. You don’t want to bankrupt yourself, so run the numbers, tallying up every expense you are going to have to cover to make sure the property is financially viable for you. It’s always a good idea to have cash reserves in place too, just in case you are slow in making a profit.

Pitfall #5: Facing nightmare tenants

If buying-to-let is your preferred option, then so be it. With good tenants in place, you will make back the money you bought on your property eventually and then make a profit. But as we said, this is assuming they are ‘good’ tenants. What about those tenants who don’t pay you on time, or don’t actually pay you at all? What about those tenants who single-handedly bring your property into ill-repair because of their negligence? What about those tenants who do a moonlight flit, leaving your property without any notice? These are nightmare tenants, each and every one of them, and it’s something you might have to put up with if you go down this real-estate route. Thankfully, you can reduce the chances of any problems. You should screen applicants before taking them on as tenants, for starters. This includes running criminal background checks and getting references from previous landlords. Knowing your legal rights will ensure you can take measures to protect yourself too. Be mindful then, and consider the following linked tips on how to deal with problem tenants should you eventually find yourself with a bad ‘un.

Finally

As with anything in life, you should never rush into real-estate without doing your homework first. Many pitfalls await, so while you might find fortune and success, you might also face losses and failure. Take the necessary steps then to ensure you don’t run into any major problems if you embark on a real-estate career. Good luck!

 

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