There’s no denying real estate investing can be a lucrative and reliable way to create steady cash flow, build long term financial security, hedge against inflation and take advantage of numerous tax deductions. But, despite the many benefits that come along with real estate investing, it’s not without its challenges.
In fact, too many mistakes, and you may find yourself in over your head financially. The good news is, with the right skills, determination and knowledge upfront (especially as a first-time investor), you can set yourself up for success.
Here are nine common first-time real estate investment mistakes to avoid:
Mistake 1 = Skipping the Basics
There’s a lot more to real estate investing than buying a property and finding a tenant. And, while you don’t need to be a master of all things investment-related before you get started, you do need to do your homework (as the more you learn, the better prepared you’ll be to deal with any challenges that come your way).
To avoid ending up in financial trouble, be sure you have a firm handle on the basics. Take the time to research various investment strategies and be sure to talk to others who have achieved real estate investment success.
Check out our previous post: 7 Habits of Successful Real Estate Investors
Mistake 2 = Going It On Your Own
Having the right team of experts on your side can make all the difference between real estate investment success or failure.
First-time investors, especially, should use every resource to their advantage. This includes partnering with an experienced real estate investment agent or REALTOR® who can provide the support and guidance you’re sure to need along your journey, including:
- Navigating the market as well as current supply and demand
- Zeroing-in on the “right” property in the “right” community
- Researching comparable properties in the area
- Negotiating a better sale price
- And much more
Another benefit of working with an expert REALTOR®? They’re well connected. They will help you build a reliable “team” of experts (mortgage brokers, lawyers, accountants, contractors, home inspectors, etc.) on which you can depend to help you through the process.
Mistake 3 = Failing to Plan Effectively
Why do you want to become a real estate investor? What are your short and long-term goals? What is your intended niche (residential or commercial? Single or multi-family)? Rather than fronting the cash for a property and then deciding how to proceed, make sure you have a keen understanding of what you want and how you hope to achieve it. From here, your REALTOR® can help you formulate the right real estate investment strategy to help you meet your goals, and thus, help you find the right property for your needs.
Mistake 4 = Not Crunching the Numbers
Part of the planning process should also include an in-depth look at your finances. Use a reliable system to accurately calculate your numbers (your agent can help you with this). You’ll need to determine how much you can afford to pay, how much you’ll need to put down in advance (including your down payment and any costs associated with repairs) and what your overall return will be.
With the right data in place, you’ll know what your best financial outcome is, as well as your break-even point and where you’re apt to lose money.
Mistake 5 = Not Accounting For Repairs and Maintenance
As we mentioned above, when determining your finances, you must factor in any costs associated with property repairs. With the help of your REALTOR® and a qualified home inspector, take note of any potentially costly problems and factor these expenses into your planning. Keep in mind, the more you spend, the longer it will take for you to see a positive return.
You’ll also need to set aside enough to cover costs associated with ongoing property maintenance (experts recommend reserving 1% of the property’s value every year to cover these expenses), as well as an emergency fund in the event of any unexpected surprises.
Mistake 6 = Missing Out on Multiple Income Streams
To make the most of your investment, we recommend looking for a property(ies) that can provide multiple income streams, such as a single-family home with an income suite (or the potential to add one if it fits in with your financial plan), a duplex or fourplex.
While it may cost a little more upfront, purchasing a first investment property with more than one unit will deliver a quicker return on your investment. You’ll also have peace of mind knowing that, should one of your units be vacant, you still have a source of income – ultimately minimizing your risk overall.
Note: Many first-time investors opt to occupy one of their units to qualify for a more affordable down payment.
Mistake 7 = Getting Emotionally Involved
As a first-time investor, we understand it can be challenging to keep your emotions in check, especially when it comes to choosing the right property. But remember, the business of real estate investing is just that – a business – and letting your emotions get in the way can lead to costly consequences.
This is yet another great reason to partner with an expert Edmonton REALTOR® as they will keep you focused on what truly matters: the numbers. They will also prevent you from overlooking other important details relevant to finding a good investment property, including amenities (schools, shops, services, etc.), location and home values, demographic data, market and neighbourhood data, real estate trends, rental rates and (most importantly), cash flow.
If a property isn’t a good investment, your agent will tell you so.
Mistake 8 = Spreading Yourself Too Thin
Of course, the whole point of real estate investing is to build wealth. But rather than spread yourself (and your finances) too thin by attempting to buy multiple properties in quick succession, we recommend utilizing the “Turtle in Fifth Gear” approach.
Concentrate on only one or two properties at a time, pay them off as quickly as possible and then move on. This approach won’t just reduce your financial risk. It will also allow you to build wealth at a much more steady, predictable rate and give you time to fine-tune your investment strategy as you go.
We all have to start somewhere. As a first-time investor, take the time to build your experience, then expand your business over time.
Mistake 9 = Not Starting At All
The worst mistake you can make as a first-time investor? Not making any mistakes at all. In short, you need to take action if you hope to succeed. Again, this doesn’t mean jumping into real estate investing without a solid plan in place, nor does it mean recklessly moving ahead without the proper resources to help you along the way. But, once you’ve done your research, readied your finances and partnered with the right real estate investment agent, you should feel confident enough to move forward.
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