Investing in real estate can provide great returns, however learning how to invest in real estate can take a long time and many people make big mistakes when they buy their first property or even before they buy a property. Some of these mistakes top real estate investors I have spoken to in the course of my property reporting careersay they have made. Here are the six biggest mistake they (top real estate investors who are now super successful) told me they have made?
LISTENING TO PEOPLE WHO HAVE NEVER INVESTED IN REAL ESTATE
Many people have strong opinions about real estate investing. Some people have good opinions about it and others think of it as a sure way to lose money.
Surprisingly many people listen to those who do not have any experience in a field, whether it is in real estate or another venture. A person could hear how great real estate is and how much money you could make from ten investors who are in the business, but one negative person who has never invested will cause that person to abandon all thoughts about investing. When you are learning about real estate make sure you learn from people who are investing in real estate now or have recently invested in real estate.
The people who are bad mouthing real estate who have never invested either wish they were brave enough to try it or have a cousin’s uncle who lost money. The negative person has no idea why that cousin’s uncle lost money or how much money they lost, but they “know” all investing is bad. For example, I hear a lot about how rental property owners’ bad mouth the business all the time.
Rental property owners love to tell horror stories about bad tenants, their rental properties losing money and how horrible it is to own rentals. The funny thing is that many of these investors still own their rentals and are buying more! Do they really hate their rentals, do they like telling horror stories for the fun of it or do they want to scare off potential investors? If they hated their rental properties that much, why don’t they sell them? Do not let yourself be easily discouraged from investing in real estate, because of a few bad stories or negative people.Not only are there overly negative people who talk bad about real estate investing, there are overly positive people only trying to sell their real estate programs.
They promise to teach you how to buy houses and make millions right away, without having to do any work. The programs cost thousands and thousands of naira and are taught by people who don’t invest themselves. The programs tend to start out with a free seminar, followed by a three-day work shop that costs a couple hundred or thousand dollars and then they hit you with the big sell. “We’ll teach you the real secrets of investing and give you financing if you spend N100, 00:00 on our program.”
Most likely they have not taught you anything useful in the first seminars, because they have saved the important stuff for their coaching program. Guess what? They don’t have any secrets to tell that you can find on the internet for free.I am not saying there are not great programs out there that will help you invest. But don’t ever be cajoled into believing that they are the ultimate.
BUYING STRICTLY FOR APPRECIATION
When you buy rental properties hoping only for appreciation you are asking for trouble. With rental properties buying only for appreciation means you have negative or no cash flow. Negative cash flow means you have to spend money on your property every month until you sell it or rents increase. Most people do not have a plan for how long they will have negative cash flow, they assume they will have enough money until they sell. You may think you have an idea of when houses will keep appreciating or start decreasing in value. Maybe an area has great schools, a great economy, strong job growth and has appreciated. But sometimes things don’t just happen the way we project
If you have cash flow and hope for appreciation then you won’t get into trouble. If you make money every year on your rental property then it is not a big deal if prices go down and you can’t sell for a while. You’re still making money every year, not paying out money every year. If you must buy for appreciation only, plan out how much money you will need to save every year and for how long. Some people become accidental investors by turning their personal residence into a rental when they can’t or don’t want to sell it. If you can’t sell a home, because you owe too much money and you do not have any savings, it might make sense to keep it as a rental. If you do not have any savings you probably don’t have a lot of extra money to spend on your rental property every year. How long can you keep putting money into your rental property before it hurts you financially?
UNDERESTIMATING THE REPAIRS NEEDED ON AN INVESTMENT PROPERTY
It is hard to estimate the amount of repairs a house will need. One problem with estimating repair costs is you can’t see everything that needs to be repaired in a home. Once you start repairing a house, then you see the entire picture and everything that needs to be done. It is impossible to see all the repairs until you start the work in some cases. Many top investors will tell you they don’t like tearing walls out of old houses because they never know what they will find behind that wall. Usually the more repairs they make on a house, the more new repairs they find that need to be done.New investors also tend to underestimate the cost of repairs and do not confirm the costs with a contractor. If you are a newer investor, you need a contractor to tell you what the costs will be. Or better yet, you should have two contractors give you a bid for work needed. Again, even with a contractor bid, you may not see all the repairs needed until work starts. Here are some mistakes that investors make when repairing a home that you should avoid.
Don’t make a house much nicer than other homes in the neighborhood. It costs more money and you won’t get that money back. If you sell a house for more money than other houses are selling for in the neighborhood it may not appraise. If it doesn’t appraise, you will have to take less money in the end anyway.
BUYING OLD HOMES WITHOUT EXPERIENCE.
The older a house is, the more repairs it will need. When you buy an old house as a rental, it can eat all your profits away with maintenance. Presumed profits can be eaten away because of the hidden costs; electrical, plumbing, foundations, etc.
USING BAD CONTRACTORS.
It is hard to know when you get a bad contractor until the work is started. Bad contractors will charge too much, take too long and may even rip you off. If you think you have a bad contractor keep a close eye on him and don’t bad afraid to fire him.
DOING THE WORK YOURSELF
Many property owners want to do work themselves to save money. The problem is unless you are a contractor, it may cost you more money to do the work yourself. It takes longer, the work is not done well and it is stressful learning and working on houses in your spare time.
PARTNERING WITH SOMEONE WITHOUT HAVING EVERYTHING IN WRITING
If you enter a partnership put everything in writing no matter who you work with. The money, the responsibilities, the exit strategies; everything has to be in writing. When you enter into a partnership, you also have to plan for everything. What if one person sells out? What if one person starts slacking on their responsibilities? What if one person stops investing the money they promised they would. All of these issues cause partnerships to turn bad. They turn families against each other and make friends enemies. If possible, avoid a partnership, but if you have to make sure everything is in writing!
OVERPRICING A PROPERTY WHEN THEY ARE FINISHED
Pricing a home too high makes the situation even worse. It increases the carrying time, increases the costs and may cause a home to sell for less than if it was priced right to begin with. When a house is overpriced, it may stigmatize a property because it sits on the market for an extended period. When a house sits on the market for a long time people wonder what is wrong with it even if the price is good after a couple of price changes.