Successful real estate investing always sounds much easier in theory than it actually is in reality. Most successful investors have made their share of mistakes, which sometimes required months or even years of work to repair
the financial damage completely. While there are incredible opportunities for careful investors, just as many potential pitfalls exist that can turn a dream investment into a nightmare very quickly.
Exploring real estate investment outside the area where you live can open opportunities to homeowners that need to sell a house fast and willing to accept a reduced price. However, managing investment property can be challenging even for owners that live next door to their rental property. Living hundreds or thousands of miles from an investment property creates one of the most challenging scenarios possible. Knowing some of the most common mistakes can help you avoid big headaches and big losses.
1. Making a purchase too quick
One of the biggest mistakes investors can make is feeling rushed and committing to a purchase before they have done all the necessary research. If you are purchasing in an area you do not know very well, don’t let a “gut feeling” guide you. Paying too much for a property is a mistake that can be almost impossible to fix later. Cash homebuyers who act quickly may sometimes come across unique opportunities. However, they are usually very familiar with the area and complete the necessary research.
2. Underestimating repair and rehab costs
You won’t always have a chance to fully inspect every home you consider buying, however, don’t be overly optimistic when estimating repairs and rehab costs. Even if a property appears to be in excellent condition on the surface, expensive repairs may still be required. Additionally, just because the contractor in your hometown will accept a certain price to complete repairs, do not assume you can always find someone that will match his price. If you are an investor from outside the area, you might have to pay higher prices until contractors get to know you.
3. Undercapitalized investors
Part of managing risk and ensuring you are prepared to make an investment is having the financial strength to make it through bad times, as well as enjoying the good times. Not having enough backup capital available to handle problems can lead to situations where an investor feels they must sell a house fast to get out of a bad situation. Cash homebuyers with adequate capital normally do not have to face this situation and can afford to hold onto a property.
4. Stepping over dollars to pick up pennies
This phrase is a creative way of saying “don’t get emotional”. If you are angry because a renter moved without paying rent or a contractor did not finish promised work, emotions should not drive collection efforts. The amount of effort spent to recover losses should directly relate to how likely you are to succeed. If a renter is broke and has no money, then chasing them halfway across the country isn’t going to put any money in your pocket. Cut your losses and move on. Flying in and out of town to attend legal proceedings and perform other collection activities can begin to add up very quickly.
Real estate investment can be a rewarding endeavor for those with the proper financial backing and knowledge. Learning from the mistakes of others can help new investors avoid setbacks and large financial losses.