When I met with Michelle the other day, she was in a bit of a panic. She’d attended a kind of Real Estate Investing 101 weekend seminar a couple of months ago, and felt pretty good about buying her first investment property afterward. When she found herself in contract on a potential money pit several weeks later, however, her emotions got the better of her and she immediately canceled the purchase. Now, that may have been the right decision to make. But, the problem, she said, was that even with a little training behind her, she realized just how underprepared she was for recognizing—and avoiding—some of the biggest mistakes in real estate investing. So, she’d backed out of her first deal and was afraid to take on another.
I reminded her that there are risks to residential property investment that come with the territory and that, quite honestly, it can be stressful. But, I also assured her that some mistakes can be avoided to better your chances of seeing solid returns. So, I gave her the “big three” to look out for and the best way to avoid them.
Three Big Mistakes to Avoid When Investing in Real Estate
When you decide to start flipping houses, it’s a big deal. It’s so big a deal, in fact, that it can seem overwhelming. There’s a lot to know about buying and renovating property to resell and every deal is different so the learning never stops. That said, there are some lessons you’ll want to avoid learning the hard way because they can negatively impact your bottom line and potentially sink your career, your confidence, or both. I call these mistakes “The Big Three.” Here there are:
- Making emotional decisions. When it comes to making a good real estate investment, it’s hard not to get emotional. But, in the interest of building your business, you’ve got to protect your bottom line by keeping a level head. During a bull market, for example, it’s tempting to buy property out of fear of being left to scrounge for scraps. This puts you at risk of overpaying for a house that you won’t be able to rehab and resell later for a good return. The same can be said of buying foreclosure auction homes. If you’ve ever been to an auction, you already know how easy it is to get caught up in the bidding frenzy on a house that no one’s even had a chance to inspect—a house that may turn out to be a money pit. There are a number of ways your emotions could undermine your efforts. So, do your best to keep your wits about you and avoid risky emotional decisions.
- Overspending on the rehab. Far too often it’s easy to overspend on a rehab and put the squeeze on your returns. Whether you decide to perform a full kitchen renovation on your investment property or choose to overhaul a major fixer, you’ve got to get the numbers right. Heck, if you only want to do new carpet, paint, and garage door, it’s still not smart to overpay. In order to accurately estimate your numbers, no matter the size of the job, you’ll need a real estate investment analysis and valuation tool that adjusts for local labor and material costs or your calculations won’t be worth much. It’s also important not to allow yourself to get swept away with, or talked into, renovation ideas that you or someone else spots on TV, in a magazine, or online. Not everything that’s trending is going to go over well with the buying demographic for your property. The hottest house on the block can leave you feeling cold—and broke—if no one wants to buy it.
- Not insuring the property. In an effort to save money and potentially increase returns, new and old investors alike frequently make the mistake of not insuring a property. Because the average rehab is only three to nine months, it’s easy to think that getting property insurance for flipping houses is a waste. After all, it’s not going to be in your possession for very long. If you have no coverage at all and a disaster—like vandalism, fire, or flooding—strikes, any work you’ve done thus far will be for naught. And, you’ll have to pay out of your own pocket for any new repairs. If you have the wrong policy because you mistakenly thought regular homeowners coverage would suffice, your claims could be denied, leaving you, again, holding the bag. Either scenario will lengthen your rehab time and shorten your profits. It simply isn’t worth the risk, especially when you consider that coverage is relatively inexpensive.
Many new and more experienced real estate investors sometimes make these mistakes and learn the lessons they teach the hard way—usually by losing a lot of money. Being aware of these mistakes is the first step toward avoiding them, of course. But, without the right support and resources to help you navigate the potential pitfalls that often arise, you could still miss out on your ability to achieve good returns. And, that brings me to the best way to avoid “The Big 3.”
Get the Support and Resources You Need to Get it Right
When I first started investing in real estate, I realized very quickly that flipping houses is a good business to be in. In fact, I learned the business almost as quickly as Michelle began questioning her own ability to succeed at it. What made the difference for me was that I became an independently owned and operated HomeVestors® franchisee at the start of my career. So, I left my training with a regional network of other franchisees with the confidence that I had what it took to achieve my goals. And, along the way, my experienced Development Agent helped me avoid both the little and big mistakes that many other real estate investors encounter. My Development Agent is also the voice of reason when I am tempted to stray from my investment strategy. I’ve certainly worked hard to get where I am today, but I didn’t do it alone. Now that I think about it, going at it alone might be the biggest mistake you can make.
Get the support and resources you need to help you gain the confidence you need to invest wisely. Call HomeVestors today!
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