Mistakes real estate investors make that’s incurring losses for them

There’s always tales and experiences of people who have been hit hard and heavy by mishaps and loses when it comes to real estate investing, even as we have large numbers of folks making it quite big in the same markets. We all know these people, they are within close proximity to us, friends, family, acquaintances, colleagues, who frequently lament their decision to invest in real estate. They constantly blame the market, real estate as an industry, the players, and even the entire process.

 

Hence the question: is suffering a heavy loss in real estate investment really avoidable, or impossible to predict? suffering a heavy loss in real estate investment? this truly unavoidable or impossible to predict? Is it justified to live in such fear?

 

If you believe the answer is “yes”, you’re not likely to get started investing in real estate. This will also prevent you from having any serious chance of success. The consequences for incorrectly assuming real estate investing is a gamble are grave. However, if you’re of the contrary opinion – “no”, it begs more questions – what are the factors that prevent someone from losing money in real estate? Is it just a matter of timing the market? Is it found in getting only great deals? Or are there more pieces to the puzzle?

 

Here is a list of things that can help you avoid financial catastrophe and greatly increase your odds of real estate investing success:

 

1. Looking for a home instead of an investment property
Shopping for property as a real estate investor is different than going out and choosing a home to live in. Finding the greatest, most beautiful house on the market or the most gorgeous vacant lot isn’t the objective. You aren’t looking for a house you would live in, you should be looking for something that the average family would rent, that you can get returns from.

 

2. “0” cash flow
Don’t buy real estate assuming the price will go up and you can sell it later. Even if this is likely to happen, this is not the assumption you should be banking on. Nobody knows what the market is going to do. This is why trying to time the market is a bad strategy to base your decisions on. Instead, only buy properties that generate more income each month than they cost to own. By avoiding “negative cash flow”, you are protected from market dips or stalling home prices. You only lose money in real estate if you sell in unfavorable conditions. Ensuring you earn positive cash flow each month will put the power for when you exit the deal back into your hands.

Also, even though a condemned home might seem perfect to fix up as a rental property, remember that investment properties need to be able to be rented as soon as possible, not sit idle waiting for renovations.

 

3. Betting too much on long-term value appreciation
One of the advantages of real estate investing, in general, is that landlords can profit in multiple ways. First, in the form of monthly rent payments, but again later in the appreciation of the underlying asset. But it’s a mistake to put too much weight on the latter. Yes, appreciation is a nice bonus when a property is sold, but investment properties should be paying for themselves on a monthly basis from day one. If it can’t, then it’s not an investment property. The fact is, high-priced homes don’t pay for themselves simply because it’s difficult to find tenants who are willing to pay that much rent. Instead, smart landlords should look for the average home in an average neighborhood because it will have the most demand, rent the fastest and pay for itself right away.

 

4. Buying in Bad Neighborhoods
While we all know the first rule of real estate (location, location, location), there is also still the temptation to buy a questionable property in an area that seems too good to be true. When it seems too good to be true, it usually is. While homes in undesirable locations can look great on paper, the reality is they almost always look better in theory than they’ll be in practice. When you buy in an area where good tenants won’t want to live, you’ll be forced to rent to less than desirable tenants, at less than desirable rents. The numbers won’t add up eventually. Avoid the temptation and only buy in areas where reliable tenants want to live.

 

5. Investing with a partner
Yes, there are good reasons for going in on a rental property with another person. Sometimes you need extra capital to close the deal, and sometimes you just want to spread out the risk of loss. But, as a general rule, unless your partner is someone you’re legally married to, it’s a mistake to get into an investment partnership. Another good way to lose money is to borrow from family members to start your investment business. If you can’t afford a down payment for a loan then you aren’t ready for investing. Family members should be your support group, not your angel investors. The only investing partnerships that carry a measure of success precedence from the start are those that are very well defined with everyone’s roles and responsibilities strictly outlined. A business is no place for ambiguity.

 

6. Constantly floating the rent
A lot of landlords think that by continuously raising their rents they’ll be able to make more money. But, in fact, the opposite is true. Think about all of the costs that go into vacancies, from fix-up repairs, to marketing and more. All of these costs can easily outweigh any small gains in higher rent. All that raising the rent on a current tenant does is force them to consider what else might be out there and make them more demanding. Keeping rent the same gives the tenant an incentive to stay and keeps them happy.

The longer they stay, the lower maintenance they are, because they’ll be less likely to call you to fix something for fear that you’ll raise the rent.

 

7. Making your real estate business a family/friends package
In my experience, emotion has no place in the rental business. It’s important to always think about the worst-case scenario: being forced to evict a tenant. Things happen, and sometimes a landlord has to take action. But can you? Many people buy an investment property with their first tenant in mind being their friend or their brother. But things happen to everyone and even the best of friends can fall on hard times. All of a sudden, what started as an investment property has turned into a messy situation. By renting to people you don’t feel that kind of emotional attachment to, it’s much easier to take action when necessary.

 

8. Failing to Educate Foremost
Now this right here has probably got to be the greatest mistake of all time. Those who have lost money in real estate very often lacked thorough comprehension as to what they were getting into until after they had committed to purchasing a property. Certain decisions when it comes to buying property or investing in real estate can’t be taken back once they are made. The time to realize you’re not prepared, or it’s the wrong deal, is before you pass the point of no return.

If you want to invest in real estate, that’s great! Start by educating yourself now, before you’re committed, then use that information to help you make the best choices. By educating yourself with the great real estate resources and tools out there, you will invest a very small amount of money to save yourself so much more in mistakes. It’s highly encouraged to thoroughly immerse yourself in reading and research before jumping in. Books, websites, podcasts, and online blog sites where you can learn from the wisdom of others will prove to be indispensable resources.

Truth be told, no investment is without risk, but that doesn’t mean you should live in fear. Start by avoiding the mistakes outlined here and you should be well on your way to growing wealth through real estate. Real estate investing isn’t rocket science. By going in eyes-open and avoiding some of the more common pitfalls of novice landlords, your chances of success will increase exponentially.

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