The following article is contributed by Amy Nickson:
Making the investment in real estate is one of the most profitable money making opportunities. However, many investors make certain mistakes while investing in real estates. For example, many new investors approach this kind of investment with the mentality of becoming rich as fast as possible. Due to this wrong mindset, they often lose a substantial amount. Soon they fall into acute financial crisis. Since the debt amount is huge, many investors file bankruptcy to get rid of it. But, what they don’t know is, they can not invest in real estate after bankruptcy. Thus, it is recommended to take advice from the experts before making any decision. Even experienced investors hire mentors or coaches to avoid deadly real estate investment mistake. However, avoiding these 8 real estate mistakes can help you to fasten and maximize the profit mode.
1. Paying no attention to capital expenditure
Real estate investors often ignore capital expenditures (replacing a furnace or refrigerator) while assessing their cash flow as they consider it as one-time expenditures. It is important for an investor to calculate each and every expense regardless of how insignificant it is. By doing so, an investor can assess the actual cash flow.
2. Not doing enough homework
Just like any other professions, the real estate investors also need proper education and training to become an expert in the profession. Many wannabe investors don’t come with proper knowledge and face difficulties. So, if you want to become a successful real estate investor, educate yourself first.
3. Not having cash reserves
It is quite important for an investor to have enough cash reserve. You need to find out ways for positive cash flow so that you can put the money towards paying off your mortgage loan. Maintaining cash reserves would also help you in getting long-term success in real estate investment. Otherwise, lack of cash may compel you to make substandard repair work or rent the property to a non-qualified tenant. Try not to invest in a property that eats cash. It would result in negative cash flow and may reduce your capability to make further investment.
4. Expecting properties to appreciate in value
Many a times, investors put money in real estates expecting the properties would appreciate in value in the near future. The investors, especially the beginners, should not make an investment decision solely based on speculation. Thus, the investors may lose money if the speculation is wrong; that is, the properties fail to appreciate in value as per expectation.
5. Ignoring the cost of transaction
Many investors make a mistake of not considering the transaction costs while calculating real estate profit. However, transaction costs comprise about 10% of the value of the property you’re investing in. Since real estate investors take out mortgage loans to purchase properties, transaction costs may sometimes exceed the amount of down payment.
6. Getting emotionally involved in deals
Often new investors get emotionally involved in a deal, which is a big mistake. To make profit, the investors should think like business owners instead of thinking like a homeowner and paying more than the property is worth for. If you fall in love with a property, then you may fail to make the right decision, and in turn, you may lose the opportunity of great income. It is advisable that you do enough research to determine the right value of the properties.
7. Forgetting time and money rule
The investors need to follow a time and money rule while investing in real estates. Usually, in real estate investment, it takes twice the expected time and thrice the estimated amount to make a unit ready for rent or sale. So, you should take this into consideration while calculating your total profit.
8. Investing in a property blindly
Many investors make the mistake of buying properties based on bad advice. They have little education to make the decision on their own. As a result, they fail to make right investment decisions and invest in wrong properties that don’t prove much profitable in the future. So, if you want to become a successful investor, you should spend enough time on educating yourself so that you can make the decision confidently. Thus, you will be able to gain high profit with comparatively less risk.
Lastly, if you’re investing for the first time, you should consult an expert to make the right investment. However, often new investors fail to do so. Apart from consulting an expert, your chances of getting success would increase if you work in a team. This is because a team of professionals comprising of real estate agents and home inspectors may assist you in making the right decisions. It would help you in getting more return on investment.
Author’s Bio: Amy Nickson is a web enthusiast. She completed her graduation from Oglethorpe University, Atlanta, Georgia. She works as a financial writer and she shares her expertise through her crisp and well researched articles based on money management, money saving ideas, debt, and so on.