If you are considering the idea of building a real estate portfolio, this guide is for you. Making mistakes can kill any opportunity to get the growth and positive return on investment you’re looking for. We’ll go over the ten mistakes you can easily avoid as you get started.
If you are considering the idea of purchasing real estate, Teifke Real Estate has agents that can help. You can contact them if you’re in the Austin, TX area and plan on investing in properties. Let’s take a look at the list below.
1. Not Doing Your Due Diligence
Due diligence is perhaps the must-do task for any kind of investing opportunity. Doing none of it or very little can kill your investment growth. We’ll go over some examples on why it’s important later on in this list.
You’ll want to do your research on the property values of a neighborhood you’re interested in investing in. Find out if the schools are highly rated. Get statistics on the crime rate.
This is just a sample list of what to look for. If the neighborhood appears to be desirable, you’re getting somewhere. You may snag a property that will be great for renting out. The deeper you do your due diligence, the better.
2. Doing Everything All On Your Own
If you are planning on investing in real estate, you can’t do everything all by yourself. You’re going to need a few trusted people to help you out. Your first person to look out for is a real estate agent.
You’ll need someone who has the experience to find the right kind of property. They’ll also do the negotiating so you can be able to get the property at a good price. Another person you’ll want to get a hold of is a home inspector.
They’ll be able to check the property from top to bottom for any potential repairs. They’ll come in handy whether you are purchasing the property or plan on selling it in the future. Other people you’ll want to keep in your network include real estate attorneys, contractors, loan officers, and others.
You don’t have to go all out from the beginning. This network can be built over time.
3. Lack Of Understanding The Financial Aspects
When it comes to real estate investing, you’ll want to understand the financial aspect. For example, you’ll want to know about the process regarding loans. This includes the requirements needed to be approved for one and the repayment structure.
Also, you have different types of loans to be aware of. Depending on your financial situation, you’re bound to find one that will be helpful in building a real estate portfolio.
4. Not Sticking To The Budget (Or Underestimating Costs)
This more or less pertains to the repairs and maintenance aspect of the property. This applies not only for when you are acquiring the property but also maintaining it. You want to stick with your budget if you want to keep your finances afloat.
Yes, some expenses can happen suddenly. It may also go a bit over budget. However, you shouldn’t splurge on something that is way outside of your planning on spending. Furthermore, it’s also a good idea to get an accurate idea of how much you’re actually going to spend.
Don’t play the guessing game. If you are worried about average costs for repairs, ask your local contractors. Get an idea of what they charge. You might get an idea of the average cost.
5. Not Starting Locally
If there is one thing a newbie real estate investor should know, it’s that real estate is local. You can find your first investment property right in your backyard. Literally and figuratively speaking, of course.
That’s why it’s important to enlist the help of a real estate agent that knows the market inside and out. This person will be one of your many points of contact as you grow your portfolio. They’ll even help you out in terms of the areas you can look at for your first property.
Sure, you can expand your real estate portfolio beyond your hometown. Yet, if you are starting out, this shouldn’t be the case.
6. Not Paying Attention To Tenant’s Needs
You have tenants that are occupying your property. This is good news. However, it’s always a good idea to keep their needs in the front of your mind.
On average, your tenants will need to live somewhere that is close to certain points of interest. One may desire a place near bus stops or any kind of mass transit. Some may want to live in a neighborhood where there is low crime.
Your tenants may be young people with families, students, or even young professionals. Their desires on where they want to live may be revealed by simply asking questions and researching that part of the market. See now why doing deep due diligence is important.
7. Overlooking The Property’s Flaws
There are several different property flaws that a real estate investor should never overlook. One is the properties you should actually avoid. Location plays a huge role in this.
For example, you should never acquire property in or around a high crime area. Likewise, properties near airports, industrial parks, and even busy streets are a no-go. Property flaws can also include the layout itself.
No front yard or backyard? Pass on it. Is the kitchen or bathroom too small? Forget about it.
The reason for this is that your average tenant won’t be happy with these issues. Not only that, safety is paramount for any tenant. Plus, no one wants to live somewhere that is noisy 24 hours a day.
8. Not Having A Plan In Place
You need to look before you leap. It’s as simple as that with real estate investing. This includes doing your due diligence. It also includes how you are going to pay for the property itself.
Will you be getting a loan? Paying just cash? What’s the method of payment you’ll be using?
What is your endgame with the property? Are you renting it out for a single family, an individual, or a group of people? So many questions to ask, but it’s always a good idea to have a solid plan in place from the acquisition process and when you are maintaining the property.
9. No Exit Plan In Place
Continuing on with the lack of plans, you might consider selling the property in the future. If that’s the case, you’ll want to come up with an exit plan. There are a few different exit plans to choose from including wholesaling, buying and holding, or a 1031 exchange.
Find out which exit plan will work to your advantage and go with it. It would be a mistake to acquire the property and not have a Plan B if things seem to go south or sideways. Especially if you plan on holding onto the property for a very long time.
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