Rodney called me up out of the blue one afternoon looking for first-time investment property advice. I hadn’t heard from the guy since just after we graduated college and was happy for the opportunity to reconnect. He’d always wanted to have a career in real estate investing, like me, but had taken the route his family expected—that of a financial planner—and moved to a different city. Now, he said, it was time to change direction. Overworked, underwhelmed, and back in town, he wanted to finally follow the career path he’d been putting off for years. Not wanting to keep him waiting any longer, I gave him the kind of real estate investment advice I wish I’d received when I was just starting out.
Advice for Buying Investment Property for the First Time
Whether coming to real estate investing from a long stint in another profession, like Rodney, or fresh off the college block, there are several rookie mistakes that are almost too easy to make. In order to hedge your bets in what’s already a competitive industry, it’s good to know what the potential pitfalls are so that you can avoid stepping in them. So, to better your chances of moving toward a new professional real estate investing career without a hitch, here’s what to look out for:
- Buying Too High, Listing too High. Don’t get stuck overvaluing a property at the outset and trying to make up for it by setting the selling price too high. Unfortunately, it’s not difficult to get caught up in the feeding frenzy that can happen over a distressed home if it’s widely marketed or there’s a general squeeze on local inventory. If you’re not careful, you could end up paying too much for a house just to beat out the competition. And, when it’s time to sell, that makes it tempting to to list your investment property based on the price you need to make the amount of money you want rather than market value. Priced too high and your investment property may end up spending a long time on the market with high carrying costs and a lower actual selling price than if you had priced it correctly the first time.
- Miscalculating Rehab Costs. Correctly calculating renovation costs is critical to ensuring a decent ROI. Without the right real estate investment analysis and valuation tools, you could get the numbers wrong. Even a minor rehab can cost you major bucks if you don’t compare estimates and end up overpaying. And, if you miscalculate some of the most expensive repairs, like electrical and plumbing, you could see your potential profits go down the drain altogether. So, learn how to run the numbers and get a good valuation tool to back you up.
- Overestimating Your Abilities. In the beginning, overestimating what you can do and how quickly you can do it is a common misstep. If you jump right in with no previous renovation experience to draw on, you could get overwhelmed by a major rehab project. The same can be said if you try to take on the repair work yourself, even for a minor rehab, in an effort to save money. In fact, it’s possible to make matters worse—and more expensive—if you attempt to repair something that’s out of your wheelhouse. At the very least, it may take you longer, costing extra money in carrying costs. So, when first starting out, concentrate your efforts on growing your real estate investment business with manageable projects and the help of experts.
- Getting Too Emotional. Making good property investment decisions takes more than expert training—it takes a clear mind and a level head. For example, if your eagerness to find a good deal drives you to buy the first house that you can get your hands on, you might miss that you’re overpaying or that you shouldn’t be buying at all. Similarly, if you let impatience with a renovation rule you, you could end up cutting the kind of corners that create more problems later. It’s also possible to get so attached to a home that, before you know it, you’ve renovated it like you’re going to live there, completely missing the mark of what the target buyer would want. Keeping your personal emotions in check is one of the biggest reasons that having a good team you can bounce ideas off of is a great idea.
- Marketing Too Soon. To put it plainly, don’t try to sell an investment property before the rehab is complete. It might seem smart to put a partially rehabbed house on the market to jumpstart interest among buyers, but it could actually work against you. Most potential home buyers won’t have the same kind of vision that you and your rehab team have. And, if they’re unable to see the house as their future home, they’ll pass up your property for someone else’s. Also, an unfinished house can look cheaply-built and overpriced if it’s missing certain key features like crown molding or new window trim. Don’t list the house until it’s really ready to be sold or you may find few people who are truly willing to buy.
Time and again, I see new investors make these mistakes and, if you make them often enough, suffer career-crashing consequences as a result. You don’t want to fall into this camp if want to buy, renovate, and sell houses successfully like I do.
The Best Way to Avoid the Worst Mistakes
I started investing in real estate shortly after college, which is unusual in our industry. But, with an MBA from a prestigious school under my belt, I figured I could make it work as well as the next guy. But, I made just about every mistake under the sun on my first deal. And, unfortunately, I see similar scenarios happening to new investors all the time—no matter their background or age. Since then, I’ve learned that one of the best ways to avoid making these kinds of mistakes is by becoming an independently owned and operated HomeVestors® franchisee.
HomeVestors provides franchisees with the some of the best tools and resources, like the proprietary valuation tool, ValueChek®, to help get all the numbers right from deal number one. And, in addition to the week-long initial training program, every franchisee gets ongoing mentoring with a seasoned Development Agent so that, if things do go awry, you’ve got the support you need from someone with a clear head to see you through. In fact, the entire team is there to help you grow your skills and your professional real estate investment business.
After my first deal went bust, I put my rookie errors behind me. If you’re a new investor, learn from my past mistakes and contact HomeVestors before you buy that first property. You and your bottom line will be glad you did.
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