Investing in real estate is a great way to diversify your portfolio. Property is a tangible asset with inherent value, unlike many other types of investments. Real estate is certainly not as volatile as the stock market. However, that doesn’t mean every property is a good purchase. Investors do sometimes make mistakes, so here are some big ones you’ll want to avoid.
Buying Without Researching
Make sure you are getting a fair deal. Buying overpriced property will lead you to losses, not gains. Understand the market, specifically in the location you are buying, to discern the plausibility of appreciation.
Having Tunnel Vision
When you add real estate to your investment portfolio, you begin to balance your risk better. But don’t be too narrow-minded on your property focus. You need to diversify your real estate holdings just as you would your stocks. Diversity can be found in location, type of real estate investment (holding and renting vs. fixing and flipping), and type of property (commercial vs. residential).
Owning property can be both time and capital intensive. You should consider building a team that will take some of the pressure off you. This could include working with a mortgage broker, who can be of assistance with offering you new ways to tap capital from private investors; hiring trustworthy contractors, who will take your renovation ideas from paper to reality; or investing in a property with a friend, who will shoulder some of the upfront costs for a portion of the profits.
Waiting on Traditional Bank Financing
Bank funding takes a while and can be complicated. In certain markets, you’ll need to close quickly and with highly competitive offers. You could consider hard money loans to gain funding much sooner. Even if traditional bank financing is right for you, having alternative financing may be useful if the bank financing falls through at the last minute.
Listening to Bad Advice
Everyone has advice to give, so be sure you take it with a grain of salt. You want to find the right sources to listen to. That may be another investor whom you know has been successful or a professional like your mortgage broker who can provide insights into the market and future appreciation.
Thinking It’s Easy
Real estate investing requires just as much knowledge as investing in the stock market. You simply don’t just scoop up a property and wait for the money to flow in. You may think your investment is a complete win-win but don’t assume there will never be a downturn in the market. Study up on all the best practices of real estate investing before you make your first purchase.
Being a Bargain Chaser
Everybody loves a bargain but seeking out deals in every transaction will leave you frustrated. If you are planning on making a long-term investment, then you don’t need a major discount. What you need to focus on are deals that make sense, today and in the future. By only looking for bargains, you are eliminating a lot of excellent opportunities.
Not Planning Your Exit Strategy
Real estate is a buy and hold investment, but that doesn’t mean you don’t need an exit strategy. Once you make a sell that nets you a profit, you should have a plan of what to do with that money. Not having a plan could put you in a position of having to pay a substantial amount of taxes. Start thinking about your next investment before you sell.
Missing the Big Picture
One of the worst mistakes you can make is not understanding how to use real estate within your broader portfolio. Real estate should be part of your financial freedom strategy. You’ll need to consider long-term appreciation, liquidity, and cash flow. Your financial plan should incorporate real estate into the picture, taking into consideration your risk appetite and investment goals.
Real estate investing can be very lucrative, but it’s key to go into it with a well-defined plan and lots of research so you can sidestep these mistakes. If hard money loans are a part of your real estate investing plan, reach out to us today and we’ll help you explore your options.