At some point, most real estate investors will make an expensive mistake – especially when they are beginners. In many cases, the consequences of these mistakes are valuable learning experiences; in others, they can cause serious setbacks. The best way to avoid these pitfalls is to take advice from more experienced investors. Below, you’ll find the five most common real estate investing mistakes and some tips for avoiding them.
#1 – Underestimating the Cost
The most common mistake among real estate investors is their propensity to underestimate costs. Whether you’re taking on a fix-and-flip project or buying and renovating a rental, it’s easy to overlook things that can cost you dearly in the long run. To avoid this, get quotes from contractors you trust, and try to focus your efforts on the renovations that will give you the most bang for your buck.
#2 – Not Asking for Help
Whether you’re investing for the first time or taking on a new type of investment, don’t be afraid to reach out for help. In today’s day and age, there are entire forums online dedicated to helping investors make the right decisions for their needs. Furthermore, you can reach out to real estate professionals, financing experts, and even contractors to get answers to pressing questions. Build your network early on so that there’s always someone you can go to when you aren’t sure what to do.
#3 – Choosing the Wrong Financing or Lender
When it comes to real estate financing, you have two options: traditional banks or private lenders. While it’s always a good idea to go through a traditional bank for the mortgage on your primary residence, that isn’t the case for future properties. When you need funding, find a private lender that offers flexible and fast financing options. If you want to generate more profits from real estate, your ability to access funds quickly will be vital. Traditional banks have long underwriting processes and require loads of paperwork, but private lenders can often get you funded in a matter of days – and all without the need to provide stacks of documents.
#4 – Not Doing Enough Research
As a real estate investor, you should be spending most of your time researching and planning your next move. Inexperienced investors tend to jump right into the next project, which proves detrimental in the end. Before you buy a property, make sure you know the ins and outs of the home, the housing market, and the neighborhood. Study the local economy closely, as well, because this will have a serious impact in the future. Most importantly, if you find faults or red flags, don’t ignore them.
#5 – Failing to Plan an Exit Strategy
Before getting involved with a new investment, make sure you have an exit strategy in place. This is one of the most important considerations of them all, and failing to plan could leave you in serious debt. Ultimately, your exit strategy will determine the overall success of your investment, and if worse comes to worse, you have a plan in place for a variety of different scenarios.
Real estate investing is simple at its core, but there are plenty of complexities that investors must consider if they want to succeed. Unfortunately, those complexities lead to mistakes in many cases. From having an exit strategy in place before you invest a single penny to choosing the right type of financing, these common pitfalls can be easily avoided.