Although real estate investing can be extremely lucrative, it’s also easy to get it wrong. When dealing with properties that can have valuations into the multiple six-figures, a single mistake can end up costing you huge amounts of money. Here are three of the most common mistakes made by real estate investors that you should try to avoid at all costs.
Underestimating Maintenance Costs
When you’re looking at a rental property, it’s all too easy to take too optimistic a view of its potential cash flow. While the income will likely look very attractive once you subtract the mortgage, insurance, and tax payments, you also need to factor in the cost of maintenance. Underestimating this expense is a huge mistake that can turn a property that looks like a huge win into a major loss. Knowing your real expenses and taking them into account will help you determine how much you can pay for the property and how much you’ll need to charge in rent.
Making Excessive Renovations to a Mediocre Property
While improving a home definitely raises its market value, there’s a point of diminishing returns that’s important to consider. Putting too much money into a simple, single-family property will likely make it difficult to find the right buyer and raise your total expenses for the project. Keep your renovations simple and focused on what buyers are really looking for. If you try to get too fancy, you’ll most likely regret it.
Expanding Too Aggressively
Once you’ve seen your first success as a real estate investor, you’ll naturally want to replicate it. While it’s obviously a good idea to expand your portfolio over time, there’s such a thing as taking on too much at once. While there are times when it pays to be aggressive, be sure to carefully consider whether you can reasonably finance a new deal without taking on excessive risk. Knowing when to be patient and wait for the right property to come along is one of the keys to successful investing.
If you can avoid these three mistakes, you’ll be much more likely to profit from real estate over the long run. While real estate investing is far from easy, going about it the right way can make you an excellent return on your investment.
Even though the first artificial intelligence AI programs begin to emerge in the 1950s, this technology had been the exclusive realm of computer scientists and leading-edge researchers. Today, however, it seems like we can’t talk about any subject or field wherein AI applications are not being discussed for their growing influence.
That includes the real estate sector. Those who don’t well understand AI can’t imagine how “intelligent machines” can have anything to do with buying a selling property. However, AI is doing nothing less than “transforming the real estate industry,” said Tara Mastroeni, a real estate writer for top media venues like Forbes and Business Insider.
We’ll forgo a tutorial on what exactly AI is here so that we can go right to describing key areas where AI is being used in real estate today.
Helping Agents Get More Clients
Real estate agents spend hours sifting through hundreds of e-mail inquiries and evaluating scads of people who contact via their websites and social media presence. The vast majority of these people are “unqualified” prospects who are likely to bog a busy agent down by wasting their time with half-baked intentions.
Now AI apps can be applied to these thousands of data points to pinpoint which prospects have the highest potential to convert into profitable clients.
Transforming Home/Property Research
Once again, webpages have been revolutionary in helping people searching for property. They offer an embarrassment of riches to choose from in just hours. Getting the same amount of data took days or weeks before the web. However, now that websites have proliferated to an enormous degree, wading through all that data means navigating a bottomless quagmire of information.
Here again, it’s AI to the rescue. AI apps can sift through gigantic amounts of relevant data posted across the internet and winnow out key data points finely attuned to the need of the property searcher. It makes real estate commerce vastly more efficient across the board.
Easier Property Valuation
This is an area where the “predictive” capability of AI comes into play. For example, an AI-driven “valuation model” can gather data from public records, an area’s transportation infrastructure, school district ratings, crime rate statistics, and much more — and use all of that to quickly nail down a value for a property in that area.
It’s common today to hear social observers discuss how the priorities of Millennials have shifted away from their elders, the Baby Boomer, and Gen X.
They say that most Millennials are not interested in buying homes and being saddled with a mortgage for 15 to 30 years. Rather, they are opting for a “lighter” lifestyle that allows them to be fluid, travel, and not be pinned down to the kinds of 9-to-5 jobs conducive to buying homes.
Well, take all those assumptions and toss them on the scrap heap of misguided punditry.
Statistics clearly show that Millennials are driving a surge in home buying. Amazingly, it’s those in their late 20s and 30s leading the way. While “experts” have given us the impression that Millennials have adopted a “gig economy” lifestyle that’s highly mobile, it seems more of them are opting to put down roots.
Stuart Eisenberg is the national director for construction and real estate BDO USA, a prominent accounting firm. He said Millennials have had some time now to pay off student loan debt and to get settled in their careers. He expects this youthful demographic to play “the disruptor role” in the real estate sector with an accelerated home-buying pace in the coming years.
Millennials are also shifting the way house buyers traditionally seek a permanent place to call home. They are far more likely to use mobile tech devices in their search for properties. This, in turn, will cause an adjustment in the way real estate agents choose to develop marketing strategies. The National Realtors Association reports that 99% of Millennials employ online searches for general information about the housing market. They also prefer text messaging as their preferred way to interact with real estate agents. Baby Boomers still prefer live phone conversations or face-to-face meetings.
Furthermore, Millennials are blowing right past smaller starter homes and opting for upscale models in suburbs and the rural edges of larger cities. The trend is to avoid costly inner-city properties. The COVID-19 factor is partly driving the latter phenomenon.
Ten years ago, few would have predicted the Millennials would be driving a trend toward increased demand for more expensive homes located in suburbs and rural areas.
Technology is disrupting many industries. Even a sector as old as real estate is being affected. Here are some innovative real estate technologies that are changing the scene.
New Buy and Selling Platforms
Platforms like Redfin and Zillow are emerging. They’re making it easier for consumers to directly sell their house on their own, without an agent. “For Sale By Owner” (FSBO) was previously difficult to do but the advent of the internet changed things. Real estate has very high fees, typically 5-6% of the selling price. These new platforms can save sellers a lot of money.
Sometimes potential buyers are in a faraway city. Or they’re unavailable during an open house. Either way, they’d benefit from a virtual walkthrough of the property. This is easy to do with some low-cost apps available.
With the technology available today, you can stage a property by digitally adding furniture. You can also create realistic photos even before construction starts.
Drones have already found a couple of use-cases in society. For real estate, they can be used for aerial photography. A flyby would be a great way to get a feel for a neighborhood.
As of now, it’s difficult to move a drone around a tiny, enclosed place. This means drones aren’t good for exploring the interior of a house.
Currently, you can plugin to the MLS (or another real estate database) that you want a studio or a four-bedroom house. In the future though, AI will be able to make recommendations based on your values, personality traits, and preferences.
Chatbots are rapidly improving every year. They’ll be able to answer questions from customers. Eventually, they’ll be able to accompany clients to real estate showings. An agent might be able to take on more clients or lower their fees.
Along with AI, big data will assist in making personalized recommendations. The more data a company has, the better it can make data-driven decisions.
In 2019, Vacasa released its report of the best places to purchase a vacation home. The key takeaway is that locations within the Smoky Mountains and Florida beaches are the top contenders. Further, you do not have to be a millionaire to consider purchasing a second home as a getaway. The median home costs within the report range from $178,000 to more than $708,000. Feel free to read through the entire report. It lists 25 different locations in total. However, the below list contains the top 5:
This city is located in the Orlando Metro Region and is housed right near several of the most popular theme parks in the nation. These parks include SeaWorld, Legoland, Universal Studios, and the famous Walt Disney World.
Whittier, North Carolina
Whittier is nestled between the Smoky Mountains and the Nantahala National Forest. This small community houses approximately 5,600 people and is close to several attractions. The Eastern Cherokee Reservation, Harrah’s Casino, and Dollywood are all within driving distance. Other interesting and family-oriented activities nearby include gem mining, hunting, fly fishing, and river rafting.
Davenport is a small city sandwiched between Orlando and Tampa. It is a city that is growing daily, but it still only houses about 5,400 residents. This is a great location for individuals who want some distance from the big cities, but still close enough to enjoy them when necessary. Tourist locations near Davenport include True Blue Winery, Providence Golf Club, and Lake Davenport.
Killington is a tiny little town of only 800 people. However, it is famously known as the largest ski area on the east coast. Not only is Killington great for skiing, but hiking enthusiasts will feel right at home as well. The Appalachian Trail runs right through Killington. Individuals will also be able to enjoy biking, ATV rides, local restaurants, and shopping centers.
Sevierville, nestled near the Great Smoky Mountains National Park, is best known as the hometown of the famous singer and actress, Dolly Parton. In 1986, a local theme park by the name of Silver Dollar City was renamed to Dollywood after Ms. Parton purchased an interest in the park, sparking an uptick in tourism.
A lot of people would love to own a vacation home but are intimidated by diving into the realm of real estate investments. That being said, there are certainly a host of benefits for investing in a vacation home. It can actually be one of the best ways for individuals to become property investors and make their way into real estate business. On that note, the following article presents the top reasons for buying a vacation home that people should consider.
Owning a property with Dual-purpose
One of the biggest advantages of investing in a rental vacation home is being able to use it as a second house when spending vacations with family as well as renting it out the remaining months of the year.
Generating Rental Income
Another benefit of investing in real estate properties is having another source of income. Indeed, the money that the second home generates can actually be used to pay for repairs, mortgage, property tax, insurance, and maintenance, just to mention a few.
Increasing Value Through Appreciation
In addition to generating funds on a short-term basis, vacation homes can also allow people to make money in the long run as well, and it happens through natural real estate appreciation. Indeed, the vacation home will most likely appreciate in value with time. This means that individuals can sell their real estate property at a higher price than the one they bought it at, and make profit in the process.
Gaining Tax Deductions
Like a primary investment property, a second house can also offer tax deductions. These deductions pertain to property tax, mortgage payment, rental income, and utilities, just to mention a few.
Learning About Real Estate
For individuals to become experts on real estate, they need to invest in properties and learn how to manage them. That being said, investing in a vacation home is considered to be an easy way in the realm of real estate investment in comparison to other real estate investments, such as wholesaling and being a full-time landlord for instance.
Easy to Manage
A lot of individuals do not have time to manage their vacation homes. So, instead of taking charge of handling the property, a property manager can be hired to take care of the vacation home.
Buying a house and selling another at the same time is certainly not an easy task. That being said, while there are many things that are out of home buyers/sellers’ control, there are certain things that they can do in order to make this process a lot smoother. On that note, the following article presents key information on how to successfully buy a home and sell another at the same time.
Evaluating the state of the local housing market
First and foremost, individuals who are interested in buying and selling a house at the same time should evaluate the state of the local real estate market. Doing so will help them properly time both the purchase and the sale. For instance, in a buyer’s market, where there are more homes in the marketplace than buyers, individuals will be able to find a home easily. In a seller’s market, on the other hand, where there are more available buyers than homes in the marketplace, individuals will have an easier time selling their house.
Working with a professional real estate agent
As buying and selling houses at the same time can be an overwhelming process, it is certainly helpful to work with a professional real estate agent. Indeed, an experienced real estate agent will be able to answer all questions regarding this process and will help individuals negotiate as well as find the perfect listing price through their local market expertise.
Understanding the financial situation
Once the home buyer/seller has chosen his or her agent and clearly understood the local real estate market, it is imperative that they understand their financial situation. The latter means knowing the amount of equity in the house, the amount of cash money available as well as the loan products that the individual qualifies for.
Buying a house before selling
It is feasible to buy a house before selling the current home if the individual is in a financial position to do so, purchases the new house with a bridge loan or makes an offer with a sale contingency.
Selling a house before buying
To make selling a house before buying a new one a smooth process, individuals can sign a rent-back provision, make an offer with a settlement contingency or find a temporary rental to live in.
Multifamily investment is continuously rising nowadays. Most property investors prefer it because they enjoy how fast it pays. With little space, many families can be accommodated, leading to greater returns. Following are the four reasons for the rise of multifamily investments.
They’re Always on Demand
Despite how difficult the economic situation is, people will always toil to put a roof over their heads. They will tend to go for cost-effective measures for residence as the situation gets tougher. However, the multifamily property provides a suitable alternative.
The homeownership trend has shifted as the young population finds themselves renting for longer. They tend to capitalize on multifamily properties because rentals are flexible and have low entry barriers. Besides, one can quickly relocate. Following this trend, multifamily properties are always in demand.
Spreading the Risk
Many tenants occupy a multifamily property. This implies that if a tenant defaults rent, the proprietor still has other sources intact. Cashflow to the landlord isn’t highly affected when a tenant vacates.
Reduction of Costs and Expenses
It’s relatively cheap to manage and maintain a multifamily property. This is because some maintenance and management costs are shared. For example, security-related costs are low since the units are under one roof.
People are experiencing harsh economic times. As a result, they flee from high-cost areas to affordable places with less population. With few multifamily properties coming up, the supply is overwhelmed. As a result, investors invest more in developing multifamily housing to bridge the gap. As natural law, when demand is higher than supply, the cost goes up. It’s a motivation to the property owners.
Flexible Financing Options
Investors feel encouraged to dive into multifamily property development due to the number of financial options. The government offers loans with few restrictions making it easier for them to develop.
Multifamily housing is on the rise since it’s the real deal in the current times. It has proved to be a steady asset class in real estate investments. As investors’ gears to put money in the right place, multifamily properties are a choice they should consider.
For any Millenials considering or even beginning to scope the real estate world, you’re on the right track. Real estate investing is one of the smartest moves anyone could make, considering the versatility and potential returns. Investing in property comes with neat benefits like passive income, tax benefits, and full control over not only the property and your investment strategy but also your profits.
That being said, deciding to invest in property can be super daunting. Where do you start? What do you do with the property?
To nudge you in the right direction, here are some essential things that Millenial real estate investors should know before jumping in.
Know your budget and credit score
While it’s not necessary to be wealthy to invest in real estate, having some savings will help buffer any risks from investing or at least reduce the uncertainty.
Establish a financial goal and investment strategy
Know your goals and the best plan to get there. Generally, most investors don’t need to pay for an entire, say $250,000 property. This is for the Millenials who are still struggling to pay off school debt: don’t worry, you can invest as well. The cool thing about real estate investing is you can purchase most properties with a down payment, which tends to about 20% of the total price. Options like getting a bank loan or lending from a trusted partner are also helpful for millennial real estate investors with limited cash at their disposal.
Scope the market
Knowing where to look for viable property options requires looking at patterns like population growth, rental demand, and job availability.
Consider the type of property.
Here, you have a few choices at your disposal. The top types of real estate include single or multi-family properties, syndications, or buy & hold turnkey funds. Single or multi-family properties are in high demand and involves a short-term strategy. Syndications are larger, commercial properties with a group of investors, resulting in less risk. Turnkey real estate funds are longer-term investments that offer immediate passive income from tenants already living there.
When you know the type of property you’re looking for, it’s time to take a look at locations you’ve identified based on the real estate market. With your budget in mind, figure out if you want to flip a house or if you’d rather be a long-distance landlord for a turnkey property.
Above all, millennial real estate investors must continue learning and growing. While the first step is to try it out without hesitation, further education will make Millenials savvier in their real estate journey.
The most popular choice among real estate investors, the single-family house, is well understood and profitable. Even in a market prone to recession, many people prefer single-family homes over condominiums, duplexes, or triplexes when it comes to investing. However, not everyone is delighted at the idea and wants to follow that route. Some investors may consider investing in multi-family units. And multi-family dwellings, especially with fewer units, tend to increase the value that matches closely with single-family homes, and their cash flow is a lot better compared to single-tenant dwellings.
This information talks about the details of finding a multi-family property and offers insight on why it can be a pleasing alternative.
Location, Location, Location
Location is of absolute importance in determining the value of a multi-family property. When the neighborhood has well-maintained lawns, quality homes, clean sidewalks, and proper signaling at intersections, it’s easier to find tenants. If there is construction activity in the neighborhood, it’s a sign of growing demand. On the flip side, if crime is on the rise in a particular area, people want to move away, reducing the neighborhood’s overall value. A change in zoning from residential to mixed-commercial use can result in a significant price reduction.
What is Inside Matters
The physical condition of the property, age, and structural stability have a noticeable effect on property value. The choice of paint color, cabinets, countertops, and flooring material matters too. The more bizarre the upgrades, the more likely that it’ll lose its market value. Likewise, the quality of craft, both in terms of original construction and recent upgrades, should be considered before purchasing a multi-family property.
Hiring a Real Estate Agent
A real estate agent can help find a multi-family property unless you insist on doing it yourself. With an agent’s assistance, you can easily wade through many unique situations, questions, and doubts that are usually not encountered in a typical single-family home buying. For example, your loan interest rate and type of purchase ( residential or commercial ) will depend on whether you are buying a duplex or an apartment with five or more units. Should you hire an accountant as well? Probably yes, if the number of units and complexity of your overall tax situation increase.