Having helped many clients make decisions that impact their real estate investment portfolios in the Westminster, Maryland area, there are mistakes to save yourself headaches later.
#1: Lack of Planning
There are some personality types that are more prone to jumping in feet first without Knowing What they’re getting into. These personality types usually live life characterized by “shooting from the hip” and “firing before aiming.”
Did you know that it’s scientifically proven that people buy things emotionally and justify their purchase logically?
This is a well-known and utilized concepts that marketers know when advertising everything from yogurt, destination vacations, and vehicles.
When you think that you have found a great deal it can be a very emotional experience. It’s really tough to control your emotions and think rationally.
However, as an investor you have to force yourself to keep the emotions in check. You can this by redirecting what you get emotional about. Don’t just get emotional by seeing the perfect house but about analyzing the perfect deal. Allow yourself to start salivating when the numbers and hard data make sense.
#2: Being Lured by the Get Rich Quick Mantra
If you have believed that I’ve had some so-called, “real estate investment guru” has told you then it is your responsibility to flush all of that out of your system before dropping your hard-earned cash on a property.
In my opinion, investing in real estate for a earlier and more secure and more prosperous retirement is the best option available.
That said, you have to allow a proven strategy to work out and develop over time. As with anything else, you also have to allow yourself to develop as a real estate investment portfolio enthusiast.
It seemed your real estate investment portfolio as a longer-term path to wealth creation and not a get rich quick scheme.
#3: Going at it Alone
Lebron James is considered to be the number one basketball player today. Even though Lebron has been a star basketball player since he was in middle school that doesn’t mean he doesn’t alone.
I believe he has 15 to 20 coaches helping him continually sharpen them every day. If that is true for Lebron, how true must it be for you?
You can’t go into a new field such as real estate investing and wing it. You should surround yourself with a team of expert advisors who could help you think through your overall investment strategy, where to find the best deals based on your strategy and analyze specific properties.
You will need a good realtor, a good home inspector, property assessor, plumber, handyman, construction company, your CPA, and property management company to name a few.
All of these people have valuable resources, perspective and connections that can help each deal be more successful.
#4: Over Paying for a Property
What are the easiest mistakes people make when buying a real estate investment property is failing to calculate in the ARV of the property.
ARV is the after repair value of the property. Need to calculate in all of the rehab costs associated with getting the house show ready. If you make the right changes people will pay top dollar for the home.
And if you buy it deep enough discount that allows you to make all the needed repairs to the property and they’re still up 15 to 30% net profit margin, then you have done a great job.
This is why as real estate investors will look for the house that is the shiniest, most gorgeous looking house on the block. Instead, we look for homes that are in great neighborhoods but are usually the ugly duckling of the block.
Going back to what we discussed earlier, consulting with your realtor about what the rent rates or sell prices are in the neighborhood can give you an indication of what you need to pay for this house in order to be able to afford making the improvements needed and still turn a profit.
#5: Planning for Cash Flow
Goal is to sell the property or get a renter in the property before the first months mortgages. However, the reality is that it could take two or three months, or more to get the right chin and in your property.
So you need to plan enough cash that you can cover all the expenses of the property for several months until you get a renter.
#6: Business Transaction Not a Personal One
It’s important to remember that building your real estate investment portfolio is totally different than buying your next home for your family to live in.
When you buy the home you want to live in this decision can be far more emotionally driven. However, when you’re making a purchase for your real estate investment portfolio, it is critical to remember to focus on the numbers and not the emotions.
Again, if you get emotional about anything, then get emotional about seeing great numbers driven by real data.
#7: Failing to Consider Your Exit Strategy
As any good chess player must think several steps ahead, good real estate investors do too.
A property that makes a good long-term rental property may not be the same property that is an ideal fix and flip. Plus, on the other hand if a property does make it to fix and flip, you have to consider whether you have the expertise, the budget, and time it takes to rehab property.
For expert fix and flip investors, choosing a home where the roof is caving in, there’s massive mold damage, and foundation issues may be daily routine – but for you, this may put you in over your head.
If you are renting a property out for cash flow, then you have to consider the upkeep costs of that property.
Conclusion
These are some of the most common mistakes real estate investors make that cause problems to their portfolio.
You should take these points into consideration on every single deal that you analyze.
If you do take these tips to heart you will save yourself a lot of money, time and headaches.
What are some tips that you would recommend investors remember before going into a deal?
