• by The VRET Team

10 Real Estate Investing Mistakes and How to Avoid Them

Home prices have risen by nearly 30 percent since 2019, but that hasn’t stopped home investors from jumping into the industry. In fact, it’s only fueled their ambition to get in on the action of a hot housing market.

With things tilted in your favor as an investor, it can be easy to want to jump in head first, but there are still a few things you should consider. Without proper planning and education, you’re more likely to face failure.

Read on for 10 of the biggest real estate investing mistakes to avoid.

1. Ignoring a Plan

The worst possible thing you can do is buy a house with no idea of what you’re going to do with it. If the market is hot, it can be difficult to avoid the feeling of FOMO (fear of missing out) that comes with waiting, but it’s best to go into this with a level head.

Before you get a mortgage or put in your down payment, it’s important to have your strategy in place and know what you’re looking for. Are you searching for a single-family home or something closer to the city? Do you want a fixer-upper with value potential, or do you want a turnkey property that’s easy to start searching out tenants for?

The choice is ultimately yours, but you want to make sure you at least have a baseline before you dive in.

2. Avoiding Research

To make your plan, you have to do your research. You don’t buy a car or a new computer without looking at different models, so why would you enter into real estate investing without doing the same?

Before you start, make a list of your questions. Here are a few you can start with:

• Is the property near a commercial site?
• Is nearby long-term construction a possibility?
• Is the home in a flood zone or other type of problematic area?
• How much work does the house need? (Think roof, foundation, siding, etc.)
• Why is the homeowner selling?
• How much did the previous homeowners pay when they moved in?
• How is the area of town you’re looking to purchase in?

As you set out to start answering those questions, make sure you’re able to write down any others that might come up. The type of research you do is also going to depend on the type of real estate investor you are, though.

A house flipper isn’t going to search for a house with the same criteria as a future landlord or land developer might, so it’s important to know where you fall on that spectrum.

3. Doing It All On Your Own

Once you’ve done a lot of research and think you have a good plan in place, it’s easy to think you have it all under control, but you’d be mistaken. Even if you’ve been in the market for a number of years, having a solid team behind you is important in the real estate investing market.

If you have no one to turn to, then you’re a lot more likely to get in trouble if things go awry, and you’re even less likely to dig yourself out quickly.

When you’re putting together your team, there are a few people you should include:

• Real estate agent
• Home inspector
• Handyman or contractor
• A decent attorney
• An insurance representative

The more comfortable you are with your team, the easier it’s going to be to continuously go through the homebuying process. These experts can help tip you off to any flaws in your home prospects, and they’ll be able to lead to decent areas in town that are likely to give you a great return on investment.

4. Forgetting Local Research

Whether you’re looking to enter a new market or you’re staying in the same area, it’s important to focus on the community rather than the market in its entirety. When you accumulate enough properties, they can all begin to blur together and it’s easy to think success is universal when it comes to your methods, but you’d be wrong.

Thoroughly researching things like land values, home values, levels of inventory, and even supply and demand issues is important when you’re deciding to invest in a new area.

It also helps to know and understand the local community and what drives it. Things like a booming restaurant scene, a decent school district and the most sought-after communities can help a lot when the time comes to make your purchase.

This is especially important if you’re looking to rent out the properties your purchase. Knowing who you’re likely to be renting to (college students, young couples, families, retired parents, etc.) is going to help you narrow down the areas you’d like to invest in.

On the flip side, if you’ve already decided on a specific community to invest in, then it’s important to know your potential tenants so you can meet their housing needs.

5. Not Having an Exit Strategy

If something goes wrong during your home purchase, having a solid exit strategy in place can save you both time and money.

Knowing how to safely extract yourself is crucial, and if you can’t figure out an easy way to do so, then it might be best to forgo the purchase altogether. The type of exit strategy you use is going to depend on the type of investment you’re making, the next steps you plan to take, and also the reason you’re walking away.

It’s smart to have a few strategies to choose from so you’re not stuck in a specific situation, but it isn’t always necessary to have this right away. Proper research and planning are essential here, and then you can go from there should the need ever arise.

6. Improper Financing

While having a solid real estate team by your side is going to help prevent this from happening, it’s important to consider that improper financing is always a possibility. With so many different loan options out there, things can get confusing — especially if you’re not paying enough attention.

It’s great to have so many choices for financing a new home, but a lot of them have odd requirements or things you might not expect when it comes to getting a home loan. If you don’t have a fixed-rate loan, it’s important to ensure you have the financial fortitude to keep up with your payments in the event that interest rates rise.

If not, make sure you have a backup plan so you can convert to a fixed-rate loan later down the line. Ideally, though, you’ll be able to get a fixed-rate loan or buy your property in cash.

7. Buying the First Thing You See

If the market is booming in the particular area you’re looking to buy, it can be easy to get caught up in the thrill of buying the first home you lay your eyes on, but it’s important to not get caught up in the thrill of it all. Take your time when searching for homes, and don’t buy the first thing you see because it seems like it’ll be a good investment.

This is an overall unproductive method of investing, and it’s a great way to lead yourself into a false sense of security with short-term thinking.

Investing in real estate isn’t a short-term game, though. It’s OK to take your time when it comes to preparing, seeking out investment opportunities, and ultimately selecting the best purchase for your money. The market will always be there, but your money can run out quickly if you’re not careful.

8. Failing to Negotiate

Once you have found a property you love, it’s important to not jump the gun. It’s easy to pay too much because you’ve finally found something that meets all your needs and more, but this is a huge mistake.

There are certain negotiating skills that are crucial for you to learn, otherwise, you’re going to end up spending way more than you might have actually needed to.

When you react out of fear and jump at the opportunity to make an investment instead of waiting on a great deal to come your way, you’re losing the opportunity to earn a great return on investment. You’re also leaving yourself more susceptible to a chain reaction of problems that you have no way of fixing.

The less you spend on the house itself, the more you’re going to be able to spend on important repairs. If you play your cards right, you might be able to have the seller make those repairs before selling, and then you don’t even have to worry about it.

Again, having the right team in your corner is crucial to the entire process, but especially this step. Overpaying can lead to problems for the property in its entirety. The right people are going to be able to help you through every step of the way.

9. Underestimating Additional Costs

If you’ve spoken with a homeowner, they’re quick to tell you about all the extra costs that come with buying a house. It’s a lot more than just making the mortgage payment every month — especially if you’re renting out to tenants.

You’re going to be expected to keep up with things like yard maintenance, ensuring all the appliances are in order, making structural changes or repairs when they’re needed, and other things of the like. Don’t forget about additional property taxes and insurance as well.

The best thing you can do before you invest? Make a running list of the monthly costs associated with owning property, and then take potential repairs and fixes into account as well.

If you have tenants, then you can offset a lot (if not all) of these costs with their monthly rent, but you have to know what you’re going to be dealing with before you can know what you’re going to charge them each month. You’ll also be able to get a better idea of whether or not this is something you can afford.

10. Treating Investing Like a Hobby

If you’re a beginner, it’s easy to view your investments as a hobby, but this could be detrimental to your overall success. Seeing it as a business (or at least a side hustle) is going to help you get a lot further than if you didn’t.

Understand things like your potential returns, ensure your books are accurate, research the best people to hire to help you along the way, and definitely identify your overall goals. This venture can be time-consuming and costly, but it’s also a great way to create a new income source for yourself if you can do it right.

There might be a steep learning curve, but if real estate investment is something you truly want to be involved in, then it’s not likely to feel too challenging. Also, taking these few tips into account is likely to be a big help along the way.

Don’t Make These Real Estate Investing Mistakes

Now that we’ve gone over a few of the worst real estate investing mistakes to avoid, it’s going to be a lot easier for you to get started. You might not have an exact roadmap to success, but when you know what to avoid, it’s easier to know where to start. Nothing can beat the value of having a decent team by your side, though.

That’s where we come in. Working with The Virtual Real Estate Team is a great way to know you have the best, and most supportive, people in your corner as you start investing. Schedule an appointment with us today to get started.