Real estate investing can be a lucrative and rewarding venture, but just like any other investment vehicle, there are pitfalls that can quickly turn your venture into a failure.
First-time investors can get in over their heads and lose money if they don’t avoid these five mistakes:
1. Letting Emotions Get in the Way
Many real estate investors, especially those who are just getting started, let emotions cloud their judgement about their purchase.
When you’re emotionally attached to the purchase, you wind up over-improving the property and investing too much of your time and money into the venture. This common pitfall can completely blow your ROI out of the water.
Always look at the dollar return for any improvement you make. The goal is to make money off of the property – not design the home of your dreams.
Over-improving a property in hopes of getting a higher rental rate may wind up backfiring on you.
2. Winging It
Winging it may work for some things in life, but real estate investing isn’t one of them. Far too many new investors buy a house because they think they got a good deal and then try to figure out what to do with it.
3. Not Understanding Deed Restrictions
Many properties come with deed restrictions, and these restrictions can have a serious impact on your investment.
“Property developers, home builders, and Homeowners’ Associations (HOA) often put deed restrictions on properties to enforce uniform building standards, protect property views, and maintain a consistent appearance within a real estate development community,” says Law Offices of Marc J. Blumenthal, Ltd..
Deed restrictions can include building style, construction materials and even paint colors. These types of restrictions may affect the way you renovate the home, and if you’re unaware of them, you could wind up pouring money into an improvement that will need to be removed or changed.
4. Not Accounting for All Costs
It’s impossible to know exactly how much it will cost to renovate a property. There are some issues that you may not know about until you get in there and start making improvements. But you should have a ballpark estimate that includes all costs.
Often, investors only look at the purchase price, the estimated cost of renovations and the potential sale price.
But there are other costs that you also need to consider, such as:
Some of these are future costs, but they still need to be considered and accounted for when deciding whether the property is a smart investment.
5. Doing it All Yourself
Many new real estate investors make the big mistake of trying to do everything themselves. From finding the property to doing the renovations and leasing, they try to wear every hat needed to reach their goal.
But there are many benefits to working with experts who have been down this path and can offer guidance. Take advantage of the expertise that these experts have to offer. You can’t do everything yourself – not if you want to succeed.