As a real estate investor, you’ve got a lot of money on the line – hundreds of thousands of dollars to be exact. This means mistakes can cost you plenty. The game of investing isn’t an easy one, but learning from your own mistakes, as well as those made by others before you, you can avoid some of the costliest blunders.
Make fewer of your own mistakes by learning from the ones made by others. Here are five mistakes you might be making as a real estate investor.
1. Trying to Predict the Market
No one can predict how any market will turn. Sure, you can make some educated guesses, but those guesses are just that – guesses. If you try to time the market to buy at the bottom of the market, you could be waiting a long, long time and still be buying higher than the current pricing.
Trying to look into your crystal ball to predict the market will only serve to fail you miserably.
2. Not Estimating Cash Flow Accurately
Since it’s never a good idea to try to predict the market, the only thing you can do is estimate your cash flow as accurately as possible. Unfortunately, many investors either underestimate expenses or ignore some expenses altogether.
Here’s an example:
Say you buy a rental property that you think you’ll make an easy $100 a month on when it’s rented. Even if you manage the property yourself, you’ll still need to factor in property management fees.
Because property management is a labor expense, you have to factor in the cost of managing it yourself. Time is money in this case. Furthermore, you never know when or if life will make it too difficult for you to continue managing the property yourself. If you are eventually forced to hire a property management company, you’ll want to know that expense is already factored into the cash flow you expect to receive.
3. Letting Emotions Guide Your Investments
As human beings, we’re naturally guided by our emotions. In real estate investing, however, this isn’t always a good thing. Because real estate is tangible – you can walk through it and touch it – it’s easy to fall in love or become infatuated with it, despite the facts. A home that has potential in your eyes may not look so hot on paper, but you might be swayed into buying it anyway because you love it.
To avoid letting your emotions get the better of you when considering investment property, let the numbers guide you, not your emotions.
4. Not Budgeting for Unexpected Expenses
Just as you can’t predict what the market will do, you can’t predict how much repairs will cost upfront. You might walk through a property you’re considering purchasing and think, “$10,000 ought to cover repairs,” only to find out later on that repairs are actually going to cost $15,000.
You can get all the estimates in the world, but in the end, it’s you who has to pay the repair bills, so allow yourself a cushion of cash just in case.
5. Not Building a Network
As a real estate investor, you need a team of various people in order to build your fortune. From expert contractors to several lender options, you can’t hope to make any money at all without a strong network behind you.
Besides a strong network, you also need strong relationships within your network. How you interact with the people you work with makes a huge difference in how willing your network is to work with you. Treat others as you’d like to be treated and work together.
There’s no doubt that real estate investing is a lucrative career, but only if you avoid some of the most common mistakes. You can learn from your own, but when you learn from others’ mistakes, you’re much better off.