Real Estate Investing MIstakes

Real Estate Investing Mistakes

Bad Financing - Bad financing can be one of the worst mistakes possible. Typically, bad financing includes a combination of the following: High interest rate, adjustable interest rate, high monthly payments, balloon payments, and personal recourse.

Misjudging Resale or Rent Value - The number one job of an investor is to understand how the end customers (renters and buyers) make purchasing decisions, and then translate that knowledge into value. If you do not do your homework, you will have hard time making investments that earn a profit.

Underestimating Repair Costs - First time investors have little idea how much it costs to renovate a property. They take advice from a home inspector or real estate agent who may just throw out a generic number. Always do a lot of homework and be very conservative in your budget estimates.

Underestimating Renovation Time - Additionally, inexperienced investors are often overly optimistic when it comes to renovation times. They think it can be done in 30 days, or 60 days. More often than not, things can go wrong.

Bad Tenants - One of the fastest ways to lose money is having bad tenants. Always check with your insurance policy and to see if it covers tenant damage. If you have a mortgage, you also want to be sure you have tenants that pay on time.

Running Out of Cash - Usually investors run out of cash for two reasons: Underestimating repair costs or underestimating future capital expenses on a rental property. Either way can prove to be a large mistake.

Letting Emotions Drive Your Decisions - The hardest thing about investing is managing your own fear and greed. It is easy to become overly enthusiastic and start believing your own fantasies. While enthusiasm is good, it should always be balanced with cold, hard, and objective analysis.

Choosing Bad Contractors - Finding contractors who will do good work, finish on time, and clean up after themselves can be as hard as finding treasure on the beach. Bad contractors quickly become expensive, eating away most, if not all, of your profits.

Planning as You Go - Inexperienced investors buy a house because they think it is a good deal and then try to figure out what to do with it. Successful investors first create a plan and then find an investment property to fit that plan.

Not Using a Tax Professional - Laws change often, impacting your write-offs and reporting methods. However, if you do your taxes correctly, you are likely to enjoy some tax benefits. Finding an experienced CPA is critical.

➢ A good CPA who specializes in real estate will be up on all of the latest information, much more than one who only has one or two real estate investors as clients.

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