Owning real estate can be a great way to build wealth, as well as to provide yourself with regular cash flow over time. However, unless it is done correctly, investing in real estate can also be a path to financial ruin. With that in mind, it’s important to ensure that you avoid the common – and costly – investing mistakes that both new and experienced investors can oftentimes make. These can include the following:
Overpaying for a Property
While it may sound strange, the profit in real estate is typically made when you buy the property. So, if you pay too much, then you will often be disappointed in the future when you don’t make any money when you go to sell it.
Making Incorrect Estimates
Real estate investors will often come across properties that need some (or a lot of) rehab work. In cases like these, it is absolutely essential to get accurate estimates on just how much time and money it will take to fix the problem areas.
In fact, in many instances, it is wise to take the estimates that you receive and then double them. This can help you to anticipate any cost overages that can – and typically will – come up along the way.
Miscalculating Cash Flow
If you plan to rent out the property you’re purchasing, then it will take a certain amount of cash flow to make it profitable. Here, you need to ensure that the rent that you can charge will cover the cost of the mortgage, as well as the cost of maintenance, insurance, and taxes.
It’s also important to add in a “cushion” for other potential costs, too, such as emergencies. Not having the right amount of cash flow allocated in your budget can quickly turn your investment into a money pit.
Planning as You Go Along
When it comes to the purchase of property – whether you plan to buy multiple units, or just one single home – you absolutely, positively have to have a plan. Oftentimes, an investor will purchase a property because they think it’s a “great deal” and then afterwards try to decide what they’ll do with it.
Unfortunately, that’s putting the cart before the horse. Just as with any other business endeavor, though, you need to have a plan first before finding the property that will fit into that plan.
Thinking that You Will Get Rich Quick
Regardless of what the late night infomercials tell you, it isn’t likely that you are going to get rich quick by investing in real estate – especially if you don’t follow all of the “rules” for buying property and do your homework.
While real estate has made many millionaires, it can also be costly and time-consuming if you don’t have a plan, as well as the right partners to rely on. One way to help with making the most of your real estate investments, while also freeing up more of your time to do other things, is to work with a property manager.
For more information on how working with the right property manager can be profitable to your real estate business, Contact Us.