Real Estate Investing: Pitfall or Profit?
You’ve been thinking about trying your hand at investing for quite some time now. You’ve talked to your friends, family and even some professionals. You’ve been researching properties and houses in your area and you may have even read a book or two. You’re feeling exhilarated by the opportunities that you see popping up in your future, as a result of the investments you are thinking of making. But somewhere in the back of your mind, that line you read or heard someone say, is haunting you and is threatening to steal your dream. It could sound like this, “Worst decision I’ve ever made” or this “I wouldn’t invest if I were you, all you’re going to do is lose money.” Now you are faced with a decision. What will you do? Should you just give up and abandon the process all together? Or is there something really to this investing stuff? Would investing become a pitfall or a profit and how do you know what is true?
The truth is, there are pitfalls in investing, but knowing how to spot those pitfalls, ahead of putting your money on the line, is the secret to making the profit. In this article we talk about four of the top pitfalls that investors will face and how to avoid them and maximize your profits.
1. Not having a plan ahead of time
This is a mistake made by many and it is detrimental to your success. A rookie will often, find a house or property they love, purchase it, not knowing what they will do with it. By doing this, they are working backwards and they are hurting their chances of being profitable.
You need to plan your investment strategy. Do you want to flip houses or rent them? Do you want to lease, sell or develop property? How much are you able to spend on a project, while still maintaining a stable personal financial life? These are examples of questions to ask yourself, when creating your strategy. Once you have your plan, then fit your investment property/house/building to your strategy, and stick to it! You will feel confident as you move forward, because you have taken the time to plan, to strategize and to prepare yourself for the adventure ahead.
2. Paying too much
This is a two-fold pitfall. An investor may make this mistake, by not having a plan or not following his plan. He may also fall into this pitfall, by not researching and jumping too soon, on a property. Sometimes, analysis of property values and comps (for profit), may be flawed, due to time passed since last appraisals, for example. Taking the time to do extra research on the neighborhood, the history of the value fluctuation and extenuating circumstances that create those fluctuations, is a great way to make sure you don’t get stuck with a property that you can’t get rid of or will lose money on. Remember, your profit or loss, is set as soon as you purchase. So make sure to do your research and don’t become a statistic, in the book of rookie mistakes.
3. Not Having a Backup Plan
There will be times, when you have followed your strategy and you have researched and done your due diligence and something still goes wrong. Maybe it’s a sudden market crash or a piece of land sells to a big commercial company, right next to where you invested in a family home. Whatever the hiccup, you need to be prepared with a plan B or C or Z. For example, if you are planning to fix up a house and resell it, then plan B may be a lease to own option and C may be a wholesale option. These backup plans should be thought out and strategically plotted, ahead of making the purchase. You want to be fully armed, so that you won’t be blindsided. Without having these backup plans in place, you will be reeling and trying to figure out how to get out the sticky situation you are in. Failing to plan in advance could cost you your financial stability. It is vital that you have a backup plan or five, when making an investment. This will decrease your risk of falling and dramatically increase your chances of thriving.
4. Miscalculating Estimates
So you’ve found a property and you take a walk through with your contractor, who will be helping you renovate, if you purchase. He gives you an estimate for what it will cost to fix up the house and you are left with a decision on whether or not to invest. One pitfall that happens frequently, is trusting that these estimates are going to be exactly right. It is important to remember, that your contractor is only seeing cosmetic issues and he is estimating on that. When the demolition and remodeling begins, it is likely that there will be other issues to address. Also, take into consideration the timing. What if something is back ordered? What if it takes longer to get an inspection or someone on your contractor’s team gets sick and you have to get new bids. All of these things add costs to your bottom line.
Finally, know that while becoming an investor may have its challenges, if you follow these tips, you will find that there are endless possibilities and potential for you to discover, as you embark on this new adventure. Take advantage of the resources around you to learn and grow even more. Some of those resources include, local investing chapters, other private investors and even us, here at Vic Green Realty. Plug into your community network system, do your homework and stay true to your strategies and you will be well on your way, to turning those pitfalls into profit. Happy Investing!