Real estate in the U.S. is a thriving marketplace, attracting a value of over $156.2 billion as of 2021. So much money translates to lots of opportunities for investors large and small to make a killing; however, like any other venture, investing in real estate has its fair share of risks.
Losing money in real estate is not uncommon, but that does not mean investing in real estate is throwing money out the window. If you play your cards right, you will be laughing all the way to the bank.
Knowing how to invest in real estate without losing money is crucial in the real estate investment process. If you plan and execute your real estate leverage strategies the right way, you can sidestep these risks and rake in huge profits.
Today, we will be highlighting key mistakes you should not make in real estate to avoid losing money.
Picking the Wrong City to Invest in
Generally, real estate prices tend to go hand-in-hand with median household incomes. That means whenever there is an increase in median household income, real estate prices will increase; however, this is not always the case, given sporadic events like booms and bust cycles that affect market prices.
That said, it is best to invest in a city with rising incomes and populations to fetch great prices for your investment, but it is not a good idea to invest in a place where real estate prices are too high. Not only because of the high investment capital but also because your prices might be too high for prospective buyers.
If you are like most people, you will invest in locations close to where you grew up. This makes sense, given you can obtain information about viable real estate investment options from family and friends. This is okay, except if you grew up in the wrong place for real estate.
Investing in real estate near your home location is a hit-or-miss approach to real estate investment. That is because it does not consider key figures like the GDP growth rate, interest rates, and demographic statistics. Simply put, you are bound to fail if you pick the wrong city to invest in.
Not Doing Your Homework
Jumping into real estate without doing your research is wanting to fail. Despite being among the most straightforward asset class to invest in, it is no cakewalk. That is why it is super important to do your due diligence before investing in real estate property.
You need to undertake tons of research to conclude a piece of property is worthy of your investment. If you are having trouble with your research, you can always find a real estate agent to help you out. That said, here are a few matters your real estate research should cover:
- Market prices of the location you plan to invest in
- Valuation of the property you have in mind
- Profit opportunities and expected cash flows
- Overall real estate market conditions
Having the above down pat should put you in a better position to succeed in real estate. The more research you do, the better your chances of averting risk to avoid losing money.
Underestimating Investment Costs
There is no doubt that real estate is an expensive venture, but most folks do not know how expensive it can get. Underestimating the real estate costs is one of the main reasons people lose money in real estate. They invest too little and end up getting nothing back.
Aside from the property acquisition cost, there are a few other costs you are likely to incur while investing in real estate. Some of these costs include:
- Taxes and government fees
- Registration charges
- Maintenance charges
- Inspection and appraisal charges
These are just a few of the many fees you will have to pay for a fruitful real estate venture. Ensure you have a proper budget before you start shopping for real estate property investments. Doing so will help you narrow down your investment options to only what you can afford.
Picking the Wrong Financing Method
As mentioned earlier, investing in real estate requires considerable capital. Many banks and financial institutions are more than willing to finance your venture; however, this does not mean you should jump on the first financing option that comes your way.
A proper financing strategy is imperative to the success of your real estate venture. Mortgages are the go-to options for many investors, which works fine for most folks. Aside from mortgages, there are plenty of other ways to finance your venture; they include:
- Real estate crowdfunding
- SBA loans
- Hard money lenders
- Microloans
- Rollover as Busines Startup (ROBS)
Explore your options and pick an option that suits your specific needs. Hard money lenders are a good option if you have a questionable credit score, but you will need to be wary of the astronomical interest rates and short repayment periods.
You do not want a financing option that works against you. Some may have unfavorable interest rates or repayment terms. The lenders might end up foreclosing the property because of failing to repay the loan.
Failing to Understand the Market and Its Trends
As mentioned earlier, any successful real estate venture is the product of lots of research. Following that line of thought, understanding the real estate market is pivotal to your success as a real estate investor.
Pay keen attention to the micro-market and consider stuff like proximity to major roads and the likes. Also, look into the presence of socio-cultural infrastructures like schools, shopping centers, and hospitals. Investing in areas with proper social amenities lowers investment risks and sets you up for success.
Pay close attention to current trends in real estate to jump on the wave. Failing to move with the times reduces your chances of succeeding in real estate. Here are a few trends in real estate you should be aware of:
- Heavy suburban migration because of work-from-home policies
- Real estate boom in Austin, Durham, and Raleigh
- A rise in online real estate prices
- Super low-priced mortgage for homeowners and investors
The internet is an incredible resource for learning all the latest trends in real estate. You will want to make sure you get all your information from a credible source though. There is plenty of bogus information sources on the internet that can set you on the wrong path.
Having Expectations That Are Too High
While real estate is profitable, it is not a limitless supply of wealth and money. Even with a diverse real estate investment portfolio, there is no guarantee that you will make a killing. That is why you need to be realistic about your financial goals.
Do not go promising your partner a Rolls Royce after landing your first tenant. Harboring dreams that are too far-fetched will ultimately lead to massive disappointment. So be pragmatic about your real estate goals and have realistic expectations.
Usually, these high expectations lead to investors rushing to invest in multiple properties. This may not work out well, and everything will end in tears. The best approach is to tread softly with real estate and only take calculated risks.
It is okay to be hopeful but remember to have realistic expectations about how much you will make from your venture.
Overlooking Minor Details
Investing in real estate can be a long and tedious process with loads of paperwork. In the hassle and bustle of dealing with mountains of paperwork, it is easy to ignore the minor details. This can have devastating consequences and compromise your venture.
Legal hurdles are among the outcomes of overlooking certain details in the paperwork. Builders have specific clauses that may not work in your favor. You may unknowingly agree to these unfair terms if you overlook the details.
If you do not have time to read through entire contracts and other documents, hire an expert to do it for you. A real estate agent or lawyer will read through the fine details to ensure everything goes as planned.
Investing in the Wrong Real Estate Asset
Real estate is highly diversified, meaning there are plenty of assets to invest in. It is vital that you put a lot of thought into the real estate asset you want to invest in. Investing in the wrong asset could lead to huge losses.
The best approach for real estate investing is to find something you are familiar with or within your financial reach. If you are heavily involved in business, commercial premises might work great for you. Residential real estate is ideal for stay-at-home folks who know what homeowners want.
Residential real estate is your safest bet because it has a lower vacancy period meaning reduced risk. Commercial properties are ideal for the long-term because business tenants lease spaces for the long haul.
How to Invest in Real Estate Without Making Costly Mistakes Made Easy
Now that we have shown you how to invest in real estate without losing money, our work here is done. It is now on you to take the right steps and make the right decisions to flourish in real estate. Remember, you are never too good for a little professional help from real estate agents.
Take our 3D tours right now to find a real estate property worth investing in.