For the first-time homeowner, future landlord, or a newbie flipper, real estate investment can be a profitable and worthwhile venture. And while that’s true, it’s not always as straightforward and easy as you wish.
For one, you have to brave an uphill battle against a slow real estate market where profit isn’t as fast for your liking. You also need to avoid real estate mistakes in order to increase cash flow, generate higher return on investment, and leave a successful legacy behind for your children. To guide you, here are the 7 biggest real estate investing mistakes to avoid when buying properties.
Top 7 Mistakes to Avoid When Investing in Real Estate Properties
1. Forgetting to Research the Property
One of the most common mistakes real estate investors make is not thoroughly researching the property they’re gonna buy. They just dive into business without even thinking twice, hoping to earn money instantly.
Don’t commit the same mistake and educate yourself first before putting your financial security on the line. Feel free to ask a lot of questions about the real estate property and inquire from the individuals living around the area. Of course, you shouldn’t forget to visit the property and see it for yourself in order to inspect it accordingly.
Here are the other factors you should consider:
Location
By now, you have probably heard about the importance of location when it comes to real estate investment. It is indeed a vital aspect to consider before buying a property. Location can determine the amount of rent you bring in, the quality of your renter, and the vacancy rate you’re likely to experience.
As such, do consider if the property is built in the vicinity of a commercial site or a residential area. The former guarantees that the said property is near schools, shopping centers, parks, and public transportation which makes it ideal for students or full-time employees. On the other hand, the latter provides an intimate and peaceful community that fits new couples and families.
You should also make sure the property is situated in a flood-free location. Lastly, you may want to ask about the crime rates around the area in order to ensure your overall safety.
Size and Floor Plan
While it’s great to have a four-bedroom home, you should know that it’s impractical and completely a waste of space considering that you live alone. In contrast, a two-bedroom property might not be enough for a big family.
Before buying a real estate property, think about how much space you’ll need and how it would fit your current lifestyle.
Age of the Property
If you’re only interested in new construction, you don’t have to think about this aspect. However, if you’re looking for used property, you should definitely consider the exact age of the property. For one, century-old premises may have a certain charm and beauty but it might require major repairs and upgrades.
Tip: You should also know that building codes change over the years. As such, only buy properties that meet these local regulations.
Seller’s Incentive
When looking for real estate properties, it’s important to ask every homeowner about the reason they’re selling their land. Doing so would help you determine those who are truly motivated to sell their property (usually because of a job relocation or an estate sale) and those who are not really in a rush (individuals who still live on the said property).
With all of these factors in mind, you’re less likely to commit real estate investing mistakes and buy a property that suits your specific needs.
2. Buying a Property for Its Furnishings
As a real estate investor, there would probably be times when you’ll be blinded by the furnishings inside a house and undoubtedly choose a photogenic property.
However, always remember that you are buying the house and not the things inside it. It’s best to focus on the floor plan and ask yourself if it would fit your current lifestyle.
3. Trusting Everything a Real Estate Advertisement States
As much as you’d like every real estate ad to display all the facts, don’t expect it to happen. Keep an open eye out and learn how to decipher real estate lingo.
Be especially wary of words like “cozy” which means small, “as is” which means it’s a fixer-upper, and “foreclosure” in which a past homeowner fails to pay the mortgage of the property.
Tip: If you think a real estate property is too good to be true based on its ad, it probably is. Make sure to see the property for yourself first before buying it.
4. Doing Everything on Your Own
Many real estate investors think that they know everything so they close the deal on their own. Most of the time, though, they end up making costly real estate investing mistakes such as an unfavorable deal or a mistake in the property title.
To prevent such from happening, it’s best to consult a real estate professional—whether an agent or realtor—who can guide you on the investment process. You should also ask the help of a handyman, a home inspector, and an insurance representative. These people would provide you with expertise knowledge about real estate investing and even advise you on any flaws of the property you’re eyeing.
Tip: You may also want to discuss your investment plans with a lawyer. He or she would be able to analyze the title or any easement and warn you of any errors or defects that can affect you down the line.
5. Not Thinking About Resale in the Future
When investing in a real estate property, most buyers would just think of short-term advantages and plans. However, if you really want to succeed in the industry and achieve greater return on investment, you should think about what’s gonna appeal to a number of buyers in the future. After all, there would definitely be a time when you may want to re-sell your home. That’s why it’s not enough to only have one strategy. What if the property doesn’t sell quick enough or what if the rental market stalls? You should always look two or three steps ahead.
6. Overpaying for the Property
Searching for a property that ticks all the boxes in your standards can be a time-consuming, frustrating, and an often impossible task. But when the time comes that a prospective real estate investor finally finds a property that meets your needs, you are more than willing to overpay for the property.
However, this is actually a big real estate investing mistake. In fact, you may end up paying more for what the property’s really worth and taking on too much debt. As a result, it may take you several years to recoup this particular investment.
In order to avoid this real estate mistake, you should conduct research and determine the price listings of other properties in the neighborhood. Consult a real estate agent or broker to help you easily access this information. You may also do this on your own, though, by simply browsing property listings on the web or a local newspaper. Always remember that unless a property offers unique characteristics compared to other homes, you should keep bids at a minimum and same with the other sales in the area.
Tip: Most real estate investors hold on looking for that one “perfect” property that they end up losing that house for a lesser-quality place. Usually, the “one” doesn’t exist. So if you find a property that ticks off eight out of the ten boxes in your list, it’s best to take it.
7. Overlooking the Hidden Costs
Most buyers only think about the money they’re gonna spend upfront for a particular property. They don’t often realize that they have to pay for a lot more than the initial asking price of the seller.
Fortunately, this real estate investing mistake can be avoided by researching extensively about the property. Ask about the property taxes before you invest. You should also consider the condition of the roof, boiler, water tank, and other furnishings and maintenance costs to keep the property beautiful and up-to-date.
Investing in a property isn’t as simple as you would think. You need to make the right decisions at the right time and consider a lot of aspects before buying a house, commercial space, or land. You also have to be aware of common real estate investing mistakes in order to prevent a considerable loss of income and make the most out of your investment.
ALSO READ: The Better Ultimate Guide to Real Estate Investments in the Philippines
Better yet, consult a real estate professional to guide you in buying the right property that would suit your needs. CitiGlobal Realty & Development, Inc., a trusted real estate developer in the Philippines, can help you find a property that offers the highest return on investment.
One of our real estate projects includes the Diamond Beach Residences, a beachfront property in Palawan. Situated in a pristine location, you can take advantage of world-class leisure and recreation spots at an affordable price.
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