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.