As a new investor, it is important to make sure that you do not fall into any buying traps in acquiring your first real estate investment.
It is no secret that most real estate investors who buy a condo or a house fantasize about how much they all receive in return after five years.
Practically speaking, the objective of real estate property investments is to make profits through price appreciation and rental income.
Be a wise investor and avoid these seven deadly mistakes when you venture into the real estate business.
#1 Not doing your research on real estate investment
Doing investment property research should be one of the first moves when purchasing an investment property.
Now if you are worried about what to research, don’t worry because real estate brokers will assist you in doing this. They will provide you a clear understanding of the overall rental strategy, as well as rental revenue, costs, cash on cash return, and cap rate.
Although you may have done a simple investment property survey and identified a property that you want to invest in; there are still several other factors that you might have overlooked.
One of the most common real estate errors made by newcomers is failing to obtain complete details about the home.
Do your homework!
Before making a purchase, weigh factors such as maintenance projections, post-repair valuation, comparables’ time on the market; and the project’s unique real estate selling points. You should also do your best to research the real estate property’s location.
Don’t skimp on the research!
Learn about the types of tenants that live there and any other details such as power and water source that can help you prepare for the future of your acquisition.
After you have gathered all of this data, you may now be able to decide if the property is worth your time or money. Make a marketing plan before investing in real estate to avoid making this mistake.
And lastly, establish your plan based on your objectives first, and then look for properties that are a good match for your desires.
#2 Going Solo in real estate investment
You may want to channel your inner Witney Houston vibe and try to do it on your own, but that is just not how we do it in the real estate business.
Investing in real estate is like taking part of a team sport.
The problem is that some investors believe they know everything and can complete a business deal on their own. Even though you might have done a lot of successful transactions in the previous; the process may not run well in all your investment deals; and there is no one to talk to if you need some repair in a bad property deal.
The importance of a team to an investor’s success cannot be underestimated. While a good real estate agent would assist you in finding a perfect home at a reasonable price; a decent mortgage broker would also ensure that you get a fair deal on your loan.
Suggested Read: How Pandemic Changes the Real Estate in the Philippines
Likewise, a good real estate investment coach will help you increase your chances to succeed in your ventures.
Although you may be able to complete some of the activities that these people will help you with; you will not be able to complete all of them.
Even how serious you are about investing, you won’t have the time to do all of the rehabilitation and renovation work alone.
On the other hand, choosing the wrong real estate agent will result in all errors that are on this list. Many of the issues listed above can be avoided with the help of an excellent real estate agent. Most real estate buyers, like many others, do not take the time to thoroughly vet the real estate agent they want.
When you decide to become a real estate investor with a long-term investment perspective; common sense should warn you that your real estate broker should share your vision.
Thus, It is important to carefully choose a reliable realtor.
#3 Bad location = bad property investment
The most important factor that determines the worth of a property is the location.
People and businesses that want to rent or buy from you look at the location first and then consider other factors such as the lot and the building.
Since it is so crucial, you should research the best areas in your region before acquiring a property.
There are some investors, however, who have profited from bad property locations, but it is a risky game to play for rookie investors like you.
Think about this. If you purchase a lower-priced residential property for less than the market value with favorable seller funding terms; but the place is terrible, and the neighbors are not friendly; it is less likely to attract good tenants.
On the other hand, if you purchase a property that costs a little higher than the latter, but the location is very strategic, it is a better option to bail you out from your previous property purchase mistakes.
When it comes to land valuation, location is more important than the house building. You are the only one that can decide which home you would choose.
Finding a home you will enjoy in the reasonable price range is always a question of time; so do not rush to a house that is outside of your ideal place. Remember, a home can still be updated and upgraded, but you cannot change the location.
Take note that an excellent real estate broker will supply you with all the vital facts you will need to make the right decision to purchase.
Factors such as low crime index rate, quality school efficiency, highway access, and local destinations; like restaurants/shopping may have a huge effect on real estate value.
If you are in search of your first condominium investment that has a strategic location and a state-of-the-art facility, choose Camella Manors!
Camella Manors offers mid-rise condominium projects with resort-themed amenities available in selected strategic cities across the Philippines.
Suggested Read: Is Condo Investment Still Worth It This Pandemic?
#4 Failure to plan before engaging to real estate investment
They said if you fail to plan, then you plan to fail. Likewise, investing in real estate without planning would be a sure-ball failure.
It is an old cliché, but it is the truth.
The principal goal of most beginning property investors is to build a lucrative investment portfolio; one that will provide them with financial independence and lifestyle choices.
Nevertheless, doing so without a plan is equivalent to putting a road trip without a map that will eventually make a wrong turn and get lost. In essence, preparation entails taking the future to the present so you can take action already.
Setting your priorities; deciding where you’d like to end up; and then developing a coherent strategy to get there are critical elements in building wealth through real estate.
You must consider both the short term and long term, and you must make sure that your investment choices are consistent with your overall plan.
The real advantage is that you’ll be able to grow your money quicker and more comfortably than the average investor by diversifying your property holdings.
You will end up right where you want to be with a well-thought-out outline of your investing path. But plan about what you’re going to do first, and then go ahead and do it.
#5 Bad financing is a no-no in real estate investment
Creative financing options exist in real estate.
Any loan forms make it easier for borrowers to purchase real estate. Loans with high-interest rates, short terms, or prepayment fees, on the other hand, can turn a good deal into a terrible one.
When financing a home, consider the loan terms to avoid making this mistake of bad credit.
A conventional, fixed-rate mortgage is the safest option (or paying cash).
Since most residential banks offer lower interest rates, it saves you from committing other mistakes with some banks offering fixed terms up to 30 years and with amortizing installments.
However, personal protection is always needed, which means you must directly guarantee the loan with your other assets and potential earnings.
Nevertheless, it is most likely a fair trade-off. To solve this problem, first, you have to improve your credit score.
Clear up any compendium issues you have that a credit checker has uncovered, and pay off all the outstanding balances you owe.
Also, be cautious of other investment funds: now is not the time to fund extra transactions, such as a car, or to open any new credit card accounts.
Find an investor that specializes in hard money loans. No, this isn’t a back-alley deal.
Private individuals and groups who put up money for real estate projects are known as hard money lenders, and they are more than willing to work with those who have bad credit.
Take note that even though poor credit may be a stumbling block for budding real estate investors; it doesn’t have to wreck the entire train.
#6 Letting emotions rule your decision-making
Acting too impulsively or being unnecessarily cautious are two of the most common behaviors of real estate beginners who never make it through their first home.
First are the impulsive buyers. They believe they must possess something they want immediately.
They go to one conference and buy into the first wild scheme they are offered without analyzing it; and when it doesn’t make them an instant millionaire; they give up and say that the opportunity is just not for them.
Procrastinators are the second group, and they are their own worst enemy.
They go to a lecture, read all the books, listen to every property podcast, and watch every film, only to become overwhelmed and unable to act.
Although the former will benefit from their losses and succeed with their investments, the latter will never be able to do that.
It’s your haven. If it comes to investment, though, allowing your emotions to affect your purchase decisions; is a typical pitfall that you should avoid at all costs.
Allowing your feelings to cloud your judgment increases your chances to over-capitalize your finances; instead of negotiating the right deal and result with your investment objectives.
#7 misunderstanding cash flow in real estate investment
Maintaining enough cash balance to catch up with maintenance and renovation requirements; is one of the most challenging aspects of operating rental properties.
A rental property will need repairs and upgrades from time to time, and as the landlord, you would be responsible for paying for them all.
This means you’ll need to have enough cash to deal with any crises that arise.
You may consider who will be in charge of handling the property or assets.
You may think that hiring a property manager would suffice; but several property management firms would decline the opportunity to handle a residential property or condo.
The economic rewards are insufficient to warrant the additional effort for a single home. If they agree to maintain your house, they may take up to 12% or more of your capital gains; money you’ll most likely use to pay upkeep and the mortgage.
Rentals can also remain empty for months at a time, like this time of global pandemic when the renting business hit rock bottom.
At this time, however, you may still have to cover the loan maintenance; and all of the other expenses that you normally have landlords pay for.
On the other hand, if you are restoring and selling several homes, you mustn’t overextend yourself financially.
If you are in the blessed situation of paying money, you would most likely have home loans to cover.
Being an entrepreneur, like anything else, is a company in which cash flow must be well handled.
Soft costs such as miscellaneous fees, loan fees, commercial property fees, and transportation costs will all have a direct impact on the stock line if you are not patient.
Truth be told, being a real estate investor is not as easy as it seems. In fact, making mistakes is much easier!
But if you are serious about buying real estate and turning it into a business, just follow the advice we just mentioned and try to better educate yourself on what investing really means.
After all, what is success without a little bit of hardship, right?