Investing in real estate isn’t easy. Real estate is a fantastic investment option for building wealth (especially with today’s mortgage rates and below-peak home prices), but it takes a good amount of hard work, research, and persistence to find the property that fulfills your particular goals and needs!
Still, even experienced investors can make the occasional mistake. Some of the most common mistakes you should avoid include:
Investing for Appreciation Only
When some new investors think about real estate, they focus on appreciation. However, as we saw when the housing bubble burst, the market has swings, and investing solely for appreciation can be a very risky endeavor. It’s impossible to existing when prices will rise, how long they will rise, and when they will fall.
Instead, savvy real estate investors invest first and foremost for cash flow. If you invest smartly and invest for cash flow, you can have a property that will generate consistent, monthly returns despite what happens in the larger market.
Not Having a Clear Plan or Goals
In order to find the right property for you, you must clearly define why you are purchasing the investment property and what your goals are for your investment. Doing so, you can make sure you find a property that both meets your comfort level and needs and help you reach your financial ambitions.
Buying Based on Emotion, Not Math
We all make decisions based on a combination of both feeling and thought. However, in life some decisions are best bade with the heart, while others should be made purely based on logic. Purchasing real estate as an investment should definitely be made logically and after much research.
Fortunately, there are a number of calculations investors can use to assess the potential return of a property, such as cap rate and cash-on cash return. The cap rate is simply the net operating income—income left over from rent after expenses, not including mortgage—divided by purchase price, or value. Determining a cap rate for potential properties provides investors with an easy, apples-to-apples, way to compare properties.
Going It Alone
With the vast amount of information available on the internet today, it’s easy to think you can go it alone when finding and purchasing a real estate investment. While I’ve listed some of the most common pitfalls for investors, there are a number of others that you can easily avoid by working with a real estate agent experienced an investing.
Don’t let the side effects of working alone keep you from taking advantage of low home prices and mortgage rates—work with a qualified real estate professional and act today!