Don’t expect to become an expert in real estate investing overnight if you’re just getting started. Buying and selling properties is a good way to make money. The process requires knowledge, skill, and determination. To prevent making bad property investments when others start investing in real estate, it also helps to know some of the classic mistakes others make.
Planned vs. unplanned
Buying a house and deciding what to do with it, later on, is the last thing anyone wants to do. The buying frenzy can be hard to resist when there is a hot market. Do your best to resist.
Decide on your investment strategy before taking out a mortgage or putting down cash. If you are searching for a house, for example, what kind of house do you prefer—one-family or multi-family, vacation destination or not? To avoid bad property investment Think about your purchase plan before searching for properties.
Researching too little
Most people compare cars and televisions before buying one and ask a lot of questions to determine if the purchase is worth the price. It should be even more rigorous to do due diligence when purchasing a house. Comparing prices is one of the best way to avoid bad property investment.
Whether they are individuals, landlords, flippers, or land developers, real estate investors must conduct research for all types of properties they invest in.
If you are interested in a property, ask a lot of questions, but also inquire about its surroundings (neighborhood). It doesn’t make sense to have a nice home if there’s a frat house just around the corner with all-night keg parties? That is unless you target student renters.
Interested investors should ask the following questions about properties they are considering:
- Will long-term construction be taking place near the property in the near future, or is it near a commercial site?
- Besides being in a flood zone, is the property in an area with radon or termite problems?
- Do you need to address any permit or foundation issues on the house?
- Which parts of the house need replacing and which are new?
- Homeowners often ask, “Why are they selling?”.
- What was the previous owner’s purchase price and when did they buy it?
- Are there any problem areas in your new town if you are moving there?
Trying to do everything by yourself
Often, buyers believe that they know everything about real estate or that they can close the deal themselves. Even if you’ve completed a number of successful transactions in the past, the process might not go so smoothly during a down market – and there is no one you can turn to if you want the deal fixed.
Investors should make use of all available resources and meet experts who can guide them in the right direction. At the very least, you should consult a real estate agent, a competent home inspector, a handyman, an insurance representative, and an attorney.
If there are problems with the house or neighborhood, the expert should be able to show them to the investor. You might also be able to get a warning from an attorney about any potential defects in the title or easements that could come back to haunt you later.
We forget that all real estate is local
If you wish to turn a profit, you need to learn about the local market. A thorough understanding of land values, home values, inventory levels, supply and demand issues, and more, is crucial. When you get a feel for these parameters, you will be better able to decide whether you should buy a particular property when it comes on the market.
Ignoring tenants’ needs
Renters who are single, young families, or college students are likely to be among your renters if you plan to buy a property to rent. Family members will want low crime rates and good schools, whereas singles may want easy access to mass transit and nightlife. How close is it to the beach or other local attractions if you plan to purchase the property as a vacation rental? The type of tenants most likely to rent in an area should match your investment otherwise it will be bad property investment.
Getting bad financing
However, despite the bursting of the North American real estate bubble in 2007, unusual mortgage options still exist. A 30-year mortgage would normally be too expensive for buyers to buy certain homes, but these mortgages allow them to purchase homes they would not have been able to otherwise afford.
Unfortunately, adjustable or variable loans and interest-only loans are likely to carry a higher interest rate at the end of the loan term. Avoid this situation. In case of an increase in interest rates, think about converting to a conventional fixed-rate mortgage at a later date if you do not have the financial flexibility to make the payments.
If you want to avoid these problems, you should start out with a fixed-rate mortgage or pay cash for your investment house.
It is illegal to discriminate in mortgage lending. There are steps you can take to report discrimination based on race, religion, sex, marital status, national origin, disability, or age.1 One such step is to file a complaint with the Consumer Financial Protection Bureau or with the U.S. government. Homeless and urban development department (HUD).
Getting overcharged
There is a connection between this issue and doing research. It can be frustrating and time-consuming to look for the right house. A prospective buyer is naturally anxious to bid on a house that meets their needs and wants after finally finding one that does.
Anxiety leads to overbidding on properties because anxious buyers tend to overbid. It is possible to have a waterfall effect if you overbid on a house. Taking on too much debt can make your payments unaffordable, and you may end up overextending yourself. Because of this, you may not be able to recoup your investment for years.
Start by researching what similar houses in your area have sold for in recent months. A real estate broker should be able to provide you with this information relatively easily
You can also look at comparable homes in the local newspaper or real estate databases as a fallback.