The Top Mistakes to Avoid as a Property Investor
As we move through 2023, there are more intentional rental property investors than ever, with over half of rental property owners defining themselves as intentional investors. For property managers, this means that more property owners want an investment strategy partner — not just someone to handle the day-to-day activities of rental management. On top of that, market trends are showing that mixed-use rentals, those that offer retail, residential, and commercial properties in a single area, are on the rise while single-family rentals are still booming as well.
Real estate investment can be a great way to diversify your income portfolio and there are many ways to accomplish the building of a high-performing property investment. You can concentrate on adding commercial or residential rental properties to your investment mix, think about buying houses and flipping them, or even invest in Real Estate Investment Trusts (REITs) if you want a more passive way to earn income from real estate. While risk and reward are always a part of the investment process, you can get more out of your role as a property investor if you avoid these common pitfalls.
Common Pitfalls in Property Investing
One of the most important things to remember about real estate investment is that you will not become an expert in the industry overnight. So many people see real estate investment as a get-rich-quick scheme that they often fall prey to the following classic mistakes.
Not Having an Overall Plan
Many people jump into real estate investing without knowing exactly how they are going to generate income, especially in hot markets like the current one. However, you should carefully think about what type of strategy you want to pursue: Do you want to deal with vacation rentals? Single-family rentals? Commercial or retail rentals? Concentrate on just one area to begin with and look for properties that fit your strategy.
Not Doing Your Research
When you consider a property for investment, you should be doing a great deal of research on not just the property itself, but also the area in which the property is located. Think about the following questions:
- Does the property have liens against it?
- What needs to be done to make the property habitable?
- Why is the property being sold?
- Is the property in a flood zone or other problematic area?
- Are there problem areas surrounding the property such as areas of crime, plans for rock quarries, landfills, or other nuisances?
- Is the area in decline or is it moving upward?
- Are there conveniences such as grocery stores and medical facilities nearby?
- Does the area have a master plan?
Other issues such as whether or not there are plans for major developments or construction surrounding the property should also be researched thoroughly before a purchase is made.
Not Understanding Local Markets
While market trends can give you an overview of real estate movements, you must gain a thorough understanding of the local market in which you wish to invest for best results. Land values, inventory levels, rental demands, and more cannot be determined on a national level. Understanding the trends in these areas in your local market will help you make a smarter, more profitable, choice.
Overpaying for Property
Many first-time investors are anxious to get in the game, so they will overpay for a property, making it difficult to maintain an appropriate level of profitability and potentially taking on too much debt. Make sure you research property values carefully and examine comparable homes before making an offer.
If you are investing in real estate you must calculate projected income and expenses accurately. Remember to add in property taxes, insurance, HOA fees, and any other expenses before calculating your potential return on investment (ROI) for the property.
Overlooking the Needs of Your Tenants
If you are purchasing properties to rent them out, you will want to keep your target demographic in mind. For example, if you are purchasing three-bedroom homes with a two-car garage, you will be targeting families. Families typically want crime-free areas close to good schools and grocery stores. However, if you want to attract single professionals, you will want to choose smaller units that are closer to good restaurants, entertainment, and mass transit opportunities.
Doing Everything Yourself
To save money and maximize profits, some first-time property investors forego expert help and try to manage the transaction on their own. Instead of relying on yourself, you should tap into the wealth of knowledge and experience that experts in the industry can offer. Choose a competent real estate agency to help you choose properties and get the best deals. Team up with home inspectors and local contractors to help renovate properties for sale or rental, and leverage the expertise of a property management company to ensure your investment rentals are producing the highest amount of revenue possible.
33 Realty Can Help You Get the Most from Your Real Estate Investment
At 33 Realty, we are a one-stop resource for all your real estate needs. Our team of experts can help you purchase, build, and manage your investment properties so that you avoid these common mistakes as a property investor and get the most out of your real estate portfolio.
If you want to get started in real estate investment, don’t do it alone. To get access to all of our resources, contact us here or call 773-839-4728.