Whether you are investing in commercial real estate or residential real estate, there are many pitfalls and traps that you can fall into that will hurt the return on your investment. As such, you need to be constantly aware of the market changes and know how to adapt to those changes so that you do not end up making a costly investment mistake. There is a lot of money to be made in real estate investment, but if you are not careful, you could end up losing your money and your property.
There are many mistakes that people make when investing in real estate. Most of the mistakes that people make relate to costs. Whether you overpay for a property or do not accurately calculate the costs associated with fixing up or maintaining the property (which include real estate taxes, insurance, and mortgage payments, if applicable), both mistakes can lead to a failed investment should the market change for the worse.
Overpaying for a property is probably the biggest mistake that some real estate investors make. If you overpay for a property, you are already monetarily in the red. This means that you are going to have that much less time to do with the property whatever it is you planned on doing (whether it is rent it out, fix it up and hold it, or fix it up and flip it, to name a few).
One of the reasons that some investors overpay for property is because they get emotionally attached to the property. This is a big mistake. Emotion cannot play a part when deciding which investment property to purchase. In order to avoid this mistake, you have to set a ceiling that you are willing to pay (make sure that the ceiling that you set is not in a range that constitutes “overpaying”). If another investor offers more for the property than your ceiling or if the seller will not accept an amount below your ceiling, move on. Let the property be somebody else’s problem. There are too many investment opportunities and too little time for you to get bogged down by one property.
When determining your ceiling, make sure that you factor in all applicable costs. For example, if you bought a house for $50,000 under market price, you may think that you made a good investment purchase. However, if the house needs $50,000 worth of work to bring it back, your “good buy” does not look so good anymore. Therefore, you have to accurately discover all of the costs associated with obtaining the property. Get an inspector in the home to tell you an estimate of the repairs that need to be done. Have your mortgage lender (if you are obtaining a mortgage) tell you about taxes, insurance, interest, and principle payments before making an offer.
Use all the available information to set your ceiling price and make sure that you do not go over that amount. You may find that the first couple of deals fall through, but once you get going, you will find that the deals become easier and easier to make. Therefore, do not get discouraged if the first couple of deals do not go your way.