Despite any short-term surges and stalls, real estate is still considered one of the best long-term investments available. Real estate can provide passive cash flows, ongoing tax breaks, and appreciation over time. And, unlike stocks and bonds, real estate offers tangible assets for investors.
But real estate investments aren’t immune to mistakes made by investors. Real estate mistakes can cost you time, money, and frustration.
So, before you jump into the real estate investment market, consider these 10 biggest mistakes real estate investors make (and how to avoid them!).
Mistake #10: Failing to Set Specific Goals
When you don’t set specific goals, it’s impossible to maintain control over the direction of your investment portfolio.
What do you want to get out of your investment? If your goal is passive income, long-term rentals are probably your best option. If your goal is to maximize income, and you don’t mind actively managing your property, short-term vacation rentals might be a better fit. And if you’re looking to get in and cash out quickly, a fix and flip might suit you.
Getting clear on these goals upfront will direct your investment decisions.
Mistake #9: Skipping the Research Phase
Research might not be the most fun part of investing, but it’s necessary. As a real estate investor, you need to know your investment options, know what to look for in a property, understand your local market, and understand real estate financing.
Investing time in learning these basics will lead to more profitable ventures.
Mistake #8: Waiting for “Perfect”
Many people want to be real estate investors, but they’re waiting for the perfect market conditions or the perfect property.
There is no “perfect” in real estate. Timing the market is impossible as peaks and valleys are only evident in hindsight. And all properties have their imperfections. Your job is simply to find a property with strong yield potential that works for you under current market conditions.
Mistake #7: Settling for Unfavorable Financing
There are several options for financing real estate investment properties. And the wrong financing can eat into your profits. Contact multiple lenders and ask about different loan options available to you before committing to one.
Mistake #6: Over-Improving
New real estate investors often get over-excited about adding value to their properties. But high-value features added to a mid-market property will probably produce poor returns. Your target market might not be willing to pay for quartz countertops, jacuzzi tubs, or top-of-the-line appliances. So keep your renovations in line with market expectations.
Mistake #5: Ignoring Renter-Relations
Renter turnover is expensive. In addition to the vacancy loss between renters, you’ll have marketing costs to find and screen new renters, as well as the cost of making the unit ready for the next renter. So it’s in your best interest to keep your renters happy, even if it comes at a small cost.
For example, rather than hiking up rental rates to full market value for each renewal period, give your renters a reasonable discount to entice them to stay.
Mistake #4: Under-Insuring the Property
When new investors see insurance premiums on their expenses, it’s tempting to try to reduce the expense. But this property is a high-value asset that deserves protective coverage. Make sure you’re carrying enough coverage on your properties so that you’ll be able to weather unexpected damages or injuries.
Mistake #3: Ignoring Local Market Trends
Understanding your local market is critical to your success as an investor. Does your property meet the needs of your local market?
In California, for example, where rents are high, more renters are opting to co-live with multiple roommates, which brings down the rent per person. But this growing niche needs properties with 3-5 beds and baths, rather than the standard 1-2 bedroom apartment of the last generation.
The investor who can identify market needs and meet them is rewarded with higher returns.
Mistake #2: Underestimating Expenses
Your investment property will cost more than just your mortgage loan payment. You’ll also need to cover property taxes and insurance, as well as maintenance and vacancy losses. It’s imperative that you maintain a “slush fund” of cash available for unexpected expenses like appliance repair or plumbing emergencies.
If you’re going to be renovating or flipping, accurate cost projections are even more important. Once you set your budget, add 5-10% to account for expenses that you simply haven’t thought of yet.
Mistake #1: Not Hiring a Real Estate Agent
Getting the purchase and sale of your properties right is key to your success. And the biggest mistake real estate investors make is thinking that they can save money by cutting out the real estate agent.
Some sellers think that they can pad their profit margins by selling the property themselves. But this nearly always backfires. Homes sold without an agent consistently take longer to sell and sell for substantially less than homes sold through an agent.
As a real estate investor, you deserve the best representation in your real estate transactions. Sequoia Real Estate provides world-class service to buyers, sellers, and investors in Northern California. With Sequoia, you’ll always have a trustworthy, knowledgeable advisor in your corner to help you find new deals and help you maximize the profitability of your investments.
Contact Sequoia today for a professional consultation with no cost or obligation.