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.