3 Classic Real Estate Investment Mistakes Newbies Make & How to Avoid Them
Photo by Stephen Leonardi on Unsplash
Are you thinking of investing in real estate? If yes, then it’s a sound decision.
Real estate is one of the easiest ways to build wealth and generate passive income. Done correctly, it can make you quite comfortable financially.
But you have to do it right or run the risk of having your money tied down for a really long time or worse, losing your investments as many people have in the past.
If you’d like to know how to protect your real estate investments and avoid the common mistakes that newbie investors often make, read on.
Investing in High Population Cities Without Adequate Market Knowledge
Real estate in densely populated cities is always in high demand.
However, for new investors with limited budgets, these properties can be quite expensive to purchase and own –even with mortgages and financing options.
Plus, there are often government regulations, zoning laws, permit issues, and many tripwires that you can easily miss because you do not know the market.
However, if you prefer these markets, by all means, go after them.
Just know that they will be tough to break into and you might need to consult with real estate experts to avoid losing a ton of money.
Not Checking Out Market Trends
What kinds of properties are people more interested in buying or renting these days? Which cities have the highest influx of new residents? If you don’t, then you need to go research what’s in demand.
It’s not enough to assume that apartment complexes in city centers, for example, are still in high demand –they’re not.
The same applies to traditional retail or strip malls with a couple of anchor malls.
For residential properties, for instance, single-family and multifamily homes in the suburbs or city outskirts are in high demand because people are working from home.
Some real estate developers know this, which is why they’re investing in these properties. And it’s been profitable for many of them.
But many of them had to pay attention to the trends before spotting these opportunities. A good example of this is Urban Trends’ latest property development.
According to Paul Ognibene, CEO of Urban Spaces, he noticed that there was a demand for properties in the suburbs and outskirts of his city.
This led to the construction of a successful multifamily condominium that had sold 90 percent of its units even before completion.
This proved that the idea of a lovely home in the suburbs was a hit for residents of the city who wanted to move out.
Underestimating the Cost Implications
In fix and flip projects, there’s something called the 70 percent rule.
This means that whatever you do, keep all property development costs and expenses at a max of 70 percent of the intended selling price.
For example, if you intend to sell a property you’re looking to acquire for $200,000, spend no more than $140,000 on the entire project, including property purchase.
If a project will cost you more than 70 percent of the selling price, just walk away until you find a good deal.