So you’ve seen your umpteenth infomercial with the guy in his neatly pressed button-up white shirt, grinning ear to ear and waving his rock-solid, no-money-down, rags-to-riches real estate investment course for 3 easy payments of a gazillion dollars (but only if you call now) and now you are thinking, “Wow, this looks like a great deal, I better get it fast before the special offer expires.” Do you notice how there’s always a special offer?
We aren’t necessarily trying to make it super obvious that our favorite infomercial guy is wrong, we’re simply advising to do your research and collect tips and tricks along the way. Whichever course or school of thought you buy into, there are several key areas that one must avoid when engaging in any real estate related transaction.
Pitfall Number 1: Overpaying!
The whole point of investing is to find properties that are undervalued. How does one find out what is undervalued versus overvalued? Without getting into technical details, the bottom line is you need experience. This doesn’t mean you’ll never be able to get started, this means to become knowledgeable in the field before investing in properties you didn’t do your research on. Much like shopping for anything else, real estate is essentially one of the highest ticket items in the shopping center of life. It’s advisable to stick with one market, perhaps the one closest to you in proximity as a starting off point. Through asking the right questions and gaining the necessary experience, you will eventually have a feel for the pulse of the market you are looking for, and of course, identify what is considered a good buy.
Pitfall Number 2: Not Knowing The Market
Yes, you are going to have to do more work! This part is really common sense though, but executing it where the beauty and the payoff come in. How do you make money when it comes to real estate investing? The most basic way is to buy low and sell high. As a first step, you have identified general trends in the value of homes, and are pretty good at spotting undervalued homes. Assuming you acquire that home, you may want to profit from it by selling it off to someone else for a higher price.
How can you do this? Well, there are many ways. For one, most markets appreciate over time so if you want a longer-term approach that will work. Making upgrades to the property will automatically raise the price of the home as well. Think in terms of what the market wants, not what you want. You’re not the one buying it; you are trying to sell it to someone else for a higher price than you bought it. Make sure to calculate the costs of possible renovations you might want to do before you purchase the house so that you don’t go over budget.
Pitfall Number 3: Not Knowing Your Budget
It may be a fine philosophy to go through life on a whim, but real estate is a serious business, and thus diligent financial planning and budgeting is critical to your success. Don’t worry you don’t need to be a finance geek, however, you need to be disciplined. Know your budget from the start, or you realize that you need to make certain renovations or upgrades, and didn’t anticipate it going over to a certain cost. Think ahead as to what is needed before actually going forth with investing in real estate. Additionally, if hiring a team is necessary to complete the renovations needed, consider this. Think about everything that you want to do or could happen before it does. It’s better to have a plan in place than scrambling last second wondering where you went wrong.
When purchasing properties, you may find that it’s harder to start than you originally thought. This is okay, do your research and crunch the numbers to make sure you are protecting yourself financially. It may also be useful to acquire a realtor to help you along in your journey (even experienced real estate investors use realtors). Just like anything else that you may be new to, make preparations and be as knowledgeable as you can before getting started.