Real estate investment can be quite lucrative, but it is important that you approach this business venture with a clear strategy in mind. Often, when real estate investments fail to produce profits, it is because the investor has made one of the following seven mistakes.
Mistake #1: Letting Your Heart Overrule Your Head
When buying your personal home, about 90% of your purchase decision-making will be based on emotion, while only about 10% will be based on logic. This makes sense when buying the home you plan to live in because you want to ensure that it is one that you and your family will love for years to come. When it comes to investing, however, letting your heart overrule your head is a common mistake that you should avoid at all costs. While a house on a cliff may have stunning views, for example, it is likely to be a nightmare to renovate due to retaining or excavation costs. It is important that you consider the long-term implications of the property and that you weigh out all its pros and cons of with a level head before making an investment.
Mistake #2: Not Doing Your Due-Diligence
It is vital that your investment decisions are based on analytical research. Take the time to research the location, historical data of area home values, vacancy rates, and planned infrastructure upgrades. Doing so will enable you to determine whether the property is one that will be able to attract quality tenants. Without performing due-diligence, you will not be able to accurately predict whether the property has the potential to provide you with the gains and returns you require.
Mistake #3: Allowing Discounts to Sway Your Decision Making
Property sellers sometimes offer discounts as an incentives. These discounts might influence you to purchase a property you might have otherwise passed on. The thing to keep in mind is that when sellers are offering special discounts, this means they want to sell the property as soon as possible. This should make you pause and consider why they want to unload the property, and why it is not selling quickly and easily without discounts. When you are faced with an offer that comes with discounts, this can cause you to make an emotional, rather than rational, decision. Before making any decisions about the property, be sure that you first compare it with others in the area, and then decide whether it is a property you would even consider if the discount were not a factor.
Mistake #4: Expecting a Fast and Easy Profit
Many people get into property investment with the hopes of becoming overnight millionaires. If your ultimate goal is to make a quick and easy profit, you may want to consider a different investment vehicle. While it is possible to do a quick flip and make a profit, most real estate investments take time to pay off. Do not look to real-estate investment as an answer to your financial problems. Remember, seeking short-term gains in this industry is more about speculation than strategic investing. Your risks are lessened and your profits are increased when you invest in a long-term strategy.
Mistake #5: Ignoring the Potential Pitfalls
Before you make any type of investment, you should be fully aware of what you are getting into. This includes knowing the benefits as well as the potential pitfalls. Even in highly popular areas, some properties sit vacant. This is a risk you run with your real estate investment. As a rule of thumb, many buy-to-let investors assume that the property will remain vacant for two months out of every year. This provides a substantial buffer when calculating costs versus profits. Also, it is important to remember that homes frequently need to have repairs and maintenance work done in order to maintain, or increase, their values. Therefore, an estimated annual cost for maintenance and repairs should be included in your calculations.
Finally, when you first purchase your property, you are likely to need to invest a large sum of money into making it ready to lease. This can include purchasing furniture, décor, kitchenware, bed linens, and towels and getting the house set up to be Wi-Fi ready. Before you sign a purchase agreement, be sure that you are fully aware of what is and is not included with the property and factor the costs you will need to incur for things that are not.
Mistake #6: Not Negotiating the Best Possible Deal
Part of successful real-estate investment is having the ability to negotiate a great deal. If you love a property that you are viewing and the sales agent or vendor can see this, they are likely to play on your emotions and sell at the highest possible price. By maintaining an appearance of indifference, you can achieve the upper hand in negotiations. Unless there are others buyers bidding on the property, you may be able to buy it at a significant discount.
Mistake #7: Not Paying for a Building Inspection Prior to Purchase
Some investors try to save a bit of money by skipping a building inspection prior to signing a sales agreement. While you may save money in the short-run with this tactic, you risk losing a lot later on. Inspectors may be able to detect significant problems with the wiring, construction or foundation of the building that you might have overlooked. A building inspection can give you an idea of the types of repairs that you will likely need to make in the near future so you can include these costs in the actual cost of the property. You don’t want to be surprised by a very expensive repair shortly after making your purchase.