Investing in real estate is a gamble, one that either pays off big or sets you back. With that in mind, I've taken it upon myself to ask veteran real estate agents to share their experiences. I asked them to point out the most costly mistakes that investors make. They're listed for you below. Be sure to read them over so that you do not fall prey to the same expensive pitfalls.
Not having a set buying strategy:
"Understand who you are as an investor. Are you looking to invest long term or do you want a quick return on your money? It is important that you have a set plan and do not deviate. A long term plan would be to buy a property, collect income form rent and grow the equity in the property over time. A short term plan would be buying at a good price, doing some improvements, and selling the property in a timely manner for a profit."
- Ralph DiBugnara, President of Home Qualified and Vice President at Cardinal Financial in New York, NY.
Hiring the wrong agent:
"If you're purchasing a luxury condominium you want to hire an agent familiar with that market. If you're buying a ten-unit, multi-family apartment building, you'll need someone with experience in that market. Unfortunately, sometimes I see investors hiring agents who are not familiar with the neighborhood or type of property that they're selling."
- Jose Hernandez, Real Estate Consultant with Coldwell Banker in Chicago IL.
Forgetting to do their due diligence:
"Investors are always attracted to properties that appear to be priced below the market, but many don't dig too deep to understand why that is the case. This is an especially common concern with all-cash buyers who at times don't bother with inspections and just assume they can take care of any hiccups that arise."
- Andrew Weinberger, CEO at PropertyClub in New York, NY.
Underestimating capital expenses:
"Repair and maintenance costs will be one of the biggest surprises for many beginning real estate investors. Experienced investors will set aside a percentage on the value of the property for ongoing maintenance and repair costs. As the property gets older, the appliances and HVAC system will wear out and the roof will need replacing. You don’t want to be caught unprepared for these capital expenses."
- Scott Hines with Premier Buyer's Agent in Nashville, TN.
Over-improving the property:
"A huge mistake that investors make is making their property the nicest one on the block. Some investors believe that if they add the most expensive furnishings or decorations it'll guarantee a higher price. This is sound logic if other homes in the area are sporting these same features.
However, if you're the first (and only) investor to add these premium features, it might mean that the buyers in that area aren't interested in a luxury rain shower head or sliding barn doors. Know what repairs will actually produce an ROI as opposed to creating a money-pit of an investment."
- Marie Oates with The Hive Law, Real Estate Lawyers in Atlanta, GA.
Trying to go it alone:
"We see people try to do it alone, without building a solid team. It's really hard to do all things well, and investing in real estate is no different. Unless it's going to be a full-time job, investors should look to assemble a team that will help them execute on their strategy and bring their expertise. Build a team that includes an investment savvy real estate agent, contractors, property management professionals, and accounting and legal expertise."
- Kevin Ortner, CEO of Renters Warehouse in Minneapolis, MN.
