Are you planning to invest in the real estate market? Great idea, but be careful, because it is not as easy as it appears to be. We know many people who have been investing in the real estate market for the past several years. In all this time, they made mistakes, but they learned from them and now you can also learn from their blunders. We had an interview with these people and our discussions highlighted the following to be the most common blunders.
Not penciling the deal
This is a mistake which over 80% investors make. They are so excited about the deal that they forget the essentials, the biggest of which is to take out time and pencil the deal. Grab some paper and do some calculations. What is the output cash flow and how much rental income do you expect the property to provide you with? Figure out all of this, and accordingly decide if your deal is worth it or not.
And not doing it with practical numbers
As we already stated, many people forget to pencil the deal. Among those who do, the majority of them use wrong and unrealistic figures. What is your predicted rental revenue? Whatever this number is, do your calculations with a lower figure to be on the safe side.
Estimating incorrect costs for renovations
What if the property you like needs some renovations? Before you rent it out, you will have to take care of this and only then can you expect to find tenants. Most of the investors assume renovations will cost around $25,000 and factor this number in their budget. Now when they start getting bids, the quotes are as high as $80,000, and so managing the renovations becomes a headache.
Another mistake which buyers make with regards to renovations is in estimating the time in which the project will be finished. In most cases, this is around 30 to 60 days, but there are times when it can take much longer than this. Needless to say, you will not be getting any income from the property in all this time.
Not understanding the risks
Investing in the real estate market has its own set of pros, cons and risks. Before stepping into the market, many people fail to realize this.
So avoid the above blunders, and your real estate investment will reward you well.
