6 Common Mistakes to Avoid in Real Estate Investing

November 18, 2019

6 Common Mistakes to Avoid in Real Estate Investing Featured Image

Investing in real estate is the hot new trend, but people can make a lot of mistakes if they jump right in without a lot of knowledge about the process.

We want you to be successful in your real estate investing adventures, so we’ve put together this list of some of the most common mistakes. Avoid them, and you’ll be on your way to earning more income.

Winging It

Too many people start investing in real estate without any significant background knowledge. They hear that this can be a good way to make some money, so they buy a fixer-upper and try to rent it out. Then they get frustrated when the big bucks don’t start rolling in.

Real estate investing is complex. You need to be carefully selecting a location that will be popular with renters. You need to think about what type of person you want to rent to and what type of home they’ll need. You need to crunch the numbers to see if the rent you can charge for a certain home is enough to cover all of your costs and earn a profit.

There are plenty of ways to learn about investing in real estate, but you should at least take a seminar or read up on the process. Additionally, having a team on hand to help lead you in the right direction is a huge plus.

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Waiting to Get Started

On the flip side, there’s a lot of people who are just too nervous to jump right in. They think they know what they need to do, but they’re not sure. Maybe they’re waiting for an awesome deal on the perfect home or maybe they’re diligently saving up money for a larger down payment.

The time spent waiting is time spent not earning money. Yes, you need to have enough money for the investment and perhaps an investing process to follow, but you don’t want to needlessly wait around for the perfect time. Get started. You can always ask questions along the way.

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Cutting Corners

In an effort to minimize costs and/or maximize profits, some people make a big mistake when they cut corners. You often see this when people use cheap supplies to make repairs or decide to take on DIY projects instead of hiring professionals. The poor quality doesn’t hold up over time, so the investor ends up putting more and more money into the property.

The better option is to start by purchasing a high-quality home. When you buy a brand-new home with all the modern features prospective tenants are looking for, you’ll feel justified in charging appropriately higher rental fees.

Not Screening Tenants

Many tenants are responsible adults who are going to take care of your property. But there are definitely a few bad apples in any bunch. When you choose your tenants, you should look at things that go beyond their ability to pay and their credit score. Do they have personal or professional references they can share? Have you met them in person to see if they’re a good fit for your property (especially if you’ll be living on the property as well)? These things make a big difference. Hopefully, you’ll have a few different tenants to choose from, and you can choose the one that’s right for you.

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Not Crunching the Numbers

Your property will not be profitable if you’re not renting it at the right rate. This means that you should be carefully looking at the rental rates in an area before you make your purchase. If you think that you’ll be able to rent out the property for a combined $2,500 (assuming you have multiple units in the building), then you’ll want to purchase a home with a mortgage payment that’s less than $2,000. Otherwise, you might not be getting enough money to cover your mortgage payment and property taxes, much less turn a profit.

Choosing Fixer-Uppers

New investors often look at fixer-upper homes before anything else. We’ve all seen the TV shows where professionals completely transform a place from a dump into something gorgeous. Unless you’re a professional contractor, that’s going to be hard to do on your own. You’ll have to hire others to do the work for you, and this drives your costs up. Furthermore, problems are likely to continue in older homes. Once you start getting ahead, you need to make repairs again. A lot of investors are starting to purchase brand-new properties to avoid these kinds of hassles.

At Sterling, we work with experienced investors and those who are just starting out on their journey. If you have questions, we have answers. Come tour our properties and see how easy it could be to rent out a home that has all of the modern features that today’s renters are looking for.

Related article: 5 Must-Have Numbers for Evaluating Real Estate Property

Click here to download a copy of The Basics of Real Estate Investing now!

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