Strategic real estate investments have resulted in some of the world’s most renowned multi-billionaires.
Real estate investors benefit from rental income, capital gains, leverage, tax incentives and inflation resistance. Still, investing in the industry requires immense prudence in order to overcome the huge risks involved.
Here is a look at some of the biggest pitfalls that investors must avoid.
The 20 Best Books for Aspiring Real Estate Investors!
Here at BiggerPockets, we believe that self-education is one of the most critical parts of long-term success, in business and in life, of course. This list, compiled by the real estate experts at BiggerPockets, contains 20 of the best books to help you jumpstart your real estate career.
7 Pitfalls that Threaten Real Estate Investors
Pitfall 1: The Lure of the Décor
Appearances can hide the reality from the view of the real estate investor.
This is why many investors fall for the home’s decoration instead of the actual condition and location of the property. Investors should check the structural condition of the property and conduct meticulous appraisals to establish the actual property value and the potential gains they can make from the homes. The temptation to invest in a home because of its decoration is big mistake that must be avoided.
Pitfall 2: Imprudence with Auctions
Real estate investors must usually stick to their investment budgets if they are to make their target profits. Many prospective investors, however, are carried away during auctions and stretch their budgets beyond their plans.
This is a huge mistake.
Judicious real estate investors know that auctions are closed by the final bids, and they are never swayed by seemingly lucrative opening bids to make offers that are beyond their budgetary plans. Moreover, prudent investors guard their finances and avoid any auctions that go beyond their budgets. When the bids go beyond their specified budgets, they pull out and turn elsewhere for investment property options.
Pitfall 3: Falling Prey to Agents
Real estate agents usually seem to know everything in the market. They have mastered persuasion tricks and express their message compellingly. As a result, many potential investors take their message as gospel truth.
What many real estate investors may not know is that some agents just want to get some property off their hands and will not present the ultimate truth to the investors. Therefore, investors should know their investment priorities, the kind of homes they are looking for and the property location they are targeting. The investors should, therefore, conduct their own research, understand the market history, explore their neighborhoods scrupulously and make their investments only when necessary.
Pitfall 4: The Stock Market Approach
Real estate pays huge profits when the investment takes a longer period of time. Typically, the values of the homes appreciate with time and are more likely to pull higher returns. Nonetheless, some real estate investors are tempted to think that property investment must be managed the way stock markets are managed.
Such investors buy homes when prices fall and sell them when prices increase, an approach which may result into slim profit margins that fall short of the investors’ targets. In actuality, real estate investors should act with patience and only sell their property when the targeted profits can be made.
Pitfall 5: Buying Property Sight Unseen
Buying homes without inspecting them is a mistake made by many investors. The results are usually dire.
In these cases, real estate investors may be likely to choose homes because of deluxe appearances and not the actual condition or location. Making property choices before seeing and inspecting them can result in massive losses in the long run. Therefore, regardless of how much the real estate investors trust their acquaintances and agents, they should visit the property and conduct inspections before spending their money.
Pitfall 6: Ignoring Agents
While real estate agents may not give you the full story at times, the information and support they provide is extremely necessary for prudent investments.
Agents understand market history and trends, offer reliable networks and know how to inspect property. Therefore, even after real estate investors find lucrative property deals online or through acquaintances, they should contact their trusted agents for counsel. Working with trusted agents can help dig out crucial information about property offers on online shops.
Pitfall 7: Disregarding Professional Inspectors
Professional inspectors can help to inform real estate investors about the actual conditions of their prospective property and to help them make informed choices. Besides, the inspectors can offer precise estimates of how much needs to be spent on property renovations.
While some investors think that disregarding professional inspectors can help them to save money, the reality is that they can lose huge sums when they do not act on correct information. Indeed, it is a mighty investment mistake to disregard professional investors.
What mistakes have you made as a new or seasoned real estate investor? Did they cost you money or time or both?
We want to hear your stories — please comment below!