With the housing market still on the long road to recovery, there are a lot of people who want to get into investment real estate. And their desire makes sense. It’s a gold rush out there, especially in certain municipal areas that were hit hardest by the Recession. With home prices still in the toilet in many markets, this market favors buyers.
Real estate has always been a way for people to vault themselves into a higher class of living. As renters, it’s hard to scrape together savings at all. But with a home of your own, you’re essentially paying yourself every month, the money you spend getting saved up as equity. Ownership is an amazing thing with something as valuable with a house, and it’s a foundation that owners can use to build further wealth.
That’s why it’s easy for people to invest in second and third (and fourth, fifth, etc.) houses, after they’ve gotten that first one financed. But buying houses gets addictive. It’s not inherently dangerous for your finances. But it’s easy to get over your head, buying stuff you want but can’t actually afford. Here are three of the most common mistakes I see in real estate investment, and how to avoid them.
1) Too Much Work Needs to Be Done. I have seen this a scary number of times among new investors. They see a house with a very low price tag. No one else has made an offer yet. Quick! Buy it before someone else snatches it up! I’ll fix whatever is wrong with it! Many new investors buy up a junk house as a first property. The price for repairs may equal or exceed what they paid for the entire structure. What a new investor needs is cash flow. If it takes 6 months and $100,000 to renovate a cheap house, you may run yourself out of business. But if you simply paid $200,000 for a move-in ready house, you could immediately get a tenant in there and give yourself some cash flow. Don’t sink yourself looking for deals! Your house inspector can give you an idea of how much repairs will cost, if you don’t have experience in this area.
2) The Neighborhood Weighs You Down. Many are the investors who are seduced by a sexy house in a crappy neighborhood. What may seem like a deal may end up being a money pit if you can’t sell at a good price or secure significant rent, due to the rattiness of the nearby houses.
3) You Underestimate. You may buy a house that looks good on paper, economically speaking. But if there are hidden problems lurking behind the walls, you can eat up your profit fast, just struggling to break even. Without experience and significant financial headroom, don’t buy old houses. What looks like a well constructed, well-maintained building, may hide secret money traps.
I’m all for real estate investment. I dabble in it myself. But as a homeowner living in a house I will one day rent out, I understand that houses hide problems. Without experience, you can get yourself financially dependent upon a property that won’t pay out for a long time, if at all.
Article Submitted By Community Writer