Investing in real estate is a very profitable business. Over 45 percent of the world’s wealthy people say real estate is their main or one of their main sources of income. There are two ways to invest in real estate: the correct way and the wrong way. In this article, I will be highlighting some mistakes to avoid when investing in real estate, especially as a first-timer.
1. WORKING ALONE: Real estate investment is more than buying to resell, it takes a lot of remodelling and marketing too, and for this, you need a team.
Building the proper team of professionals is crucial to the success of a real estate investor. A good relationship with at least one real estate agent is required at the absolute minimum.
As an investor, you can’t create a business if you spend all of your time fixing leaky faucets and hanging ceiling fans. You should have solid relationships with at least one real estate agent, an appraiser, a house inspector, a closing attorney, and a lender, both for your own deals and to assist prospective purchasers with financing.
Building the proper team of professionals is crucial to the success of a real estate investor. A good relationship with at least one real estate agent is required at the absolute minimum.
As an investor, you can’t create a business if you spend all of your time fixing leaky faucets and hanging ceiling fans. You should have solid relationships with at least one real estate agent, an appraiser, a house inspector, a closing attorney, and a lender, both for your own deals and to assist prospective purchasers with financing.
2. NOT BUYING WITH YOUR HEAD: Purchasing an investment property is not the same as getting your permanent home. You don’t have to love the property; you simply have to make sure the facts and figures add up. So leave your personal preferences at the door and focus on capital growth drivers, and make sure you acquire an investment grade property in an area poised for long-term capital growth.
3. NOT RESEARCHING LOCATIONS: Sure, the property itself must be appealing to both owner-occupiers and tenants, but the most crucial consideration is purchasing in the correct location.
Location accounts for 80% of the heavy work in the capital growth of your investment property. Rent yields can only take you so far; to truly generate wealth, you must pursue capital growth – and not all locations are created equal.
While having a foothold in the market in a less expensive outer suburb may be appealing, price increases will likely take considerably longer (and be more uncertain) than in a middle-ring or inner-city location.
Before you buy, look at the data for your desired location to determine how the property’s value is projected to increase over the next 10 years.
Location accounts for 80% of the heavy work in the capital growth of your investment property. Rent yields can only take you so far; to truly generate wealth, you must pursue capital growth – and not all locations are created equal.
While having a foothold in the market in a less expensive outer suburb may be appealing, price increases will likely take considerably longer (and be more uncertain) than in a middle-ring or inner-city location.
Before you buy, look at the data for your desired location to determine how the property’s value is projected to increase over the next 10 years.
4. Many people buy a house and end up trapped in it because they only have one exit strategy: “Buy to resell.” Always have at least two to avoid mistakes, if not three, ways out of any situation. Plan B may be to offer a lease-purchase to a buyer if plan A is to rehab the house, put it on the market, and resell it. Plan C could involve keeping the house and renting it out. The wholesale option, which entails selling to another investor at a below-market price, can even be plan D.
5. AVOIDING DUE DILIGENCE: Investors are frequently required to act fast on their deals. That isn’t to say people don’t do their homework before signing a contract and writing a check.
According to Houston-based real estate agent Laolu Davies-Yemitan, this is where a lot of newcomers make mistakes. They don’t do their homework on the offer, the costs, or the market circumstances, and they end up spending all of their savings because the house needs substantial renovations or they can’t sell it. Sometimes, novice investors may acquire property solely on the assumption that it will appreciate.
Conclusion
Real estate investment can get the most out of real estate if you do the right research. Real estate investment is a long-term wealth generator that can span generations. Find out more about real estate investment and how you can benefit from it. Find out more in our post on real estate investment.
Real estate investment can get the most out of real estate if you do the right research. Real estate investment is a long-term wealth generator that can span generations. Find out more about real estate investment and how you can benefit from it. Find out more in our post on real estate investment.