COMMON MISTAKES OF REAL ESTATE INVESTORS
Getting into a real estate market is like taking a hike. You need to trail all the steps to be able to reach the highest peak of the mountain. It is the same concept with buying and selling properties. Sure, you can generate money from this venture but it but it won't be easy. Difficulties can be overcome by avoiding the classic mistakes in real estate investing.
Lack of Research Before deciding to buy a new television or a brand new car, weigh its pros and cons to determine if the purchase is worth his money. One must be rigorous in doing his own due diligence, much more with purchasing a new house.
There are certain considerations for every type of real investor in buying a home based on his financial needs and goals. So it is good to ask several questions about the house, as well as the neighborhood where the house is located. You may ask the following regarding the home in question:
- Where is the new house located?
- Does the house have foundation or permit issues that needs to be addressed?
- Why is the homeowner selling?
- What did he pay for the house? When?
- Are there any problem areas in the town?
- Is it located in a flood zone or problematic area?
- Is it built in a commercial zone?
Getting Lousy Financing Most buyers with adjustable/variable loans or interest-only loans settle their loans when interest rates increase. Make sure to have the financial flexibility when making payments especially when rates escalate. They should also have a back-up plan to switch to a more traditional fixed-rate mortgage if they can no longer afford to catch up with rate hikes.
Doing Everything on Your Own This is one of the biggest mistakes many real estate investors commit. They assume they know everything or they can seal a real estate transaction on their own. Do you think it is cheaper to do everything on your own? Think again. Tapping every possible resource and befriending experts are more efficient than doing it all by yourself. Some of the potential experts an investor can tap include a home inspector, lawyer, insurance representative, and real estate agent. This will save you more time and money.
Overpaying If a real estate investor has done his own research, he can avoid overpaying. One of the reasons why investors do not make money from this investment is they pay too much for properties. Looking for the right house is a long, tedious process. When a potential buyer finds a house suitable for his needs and/or wants, the buyer is naturally apprehensive to make the seller accept his bid.
However, an anxious buyer can overbid on properties, which can lead to a waterfall effect of problems. In the end, buyers may be overextending themselves and take on too much debt, resulting to possibly higher payments and longer period to recover this investment.
How do we know if we are overpaying? Start off with searching other similar houses in the area that are for sale. Real estate brokers should provide these details. Or simply look for these houses in the newspaper and its offerings. Take into the consideration its value over time and distinct traits, among others.
Underestimating Expenses Owning a house does not end with paying the mortgage periodically. An investor should also factor in maintenance expenses and other costs relative to maintaining the house. Not to mention the costs associated with making structural changes in the house, property taxes, and insurance (if any).
Most investors tend to underestimate these costs, which makes them house poor and cash poor. In real estate investing, one must list down all of the monthly costs related to managing and maintaining a house, including short-term financing costs, prepayment penalties, and cancellation fees, before bidding for the property to get an idea if the house is worth the purchase. These numbers are more significant for house flippers and investors. Their profits are directly connected to the amount of time they take in acquiring a house, improving it, and reselling it.
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