Pete, an old friend from college, hit me up on Facebook last year and we met up for a couple of beers. We talked about our lives since graduation ten years ago and all that has happened since. My career as a professional real estate investor has taken off, but Pete told me he was unhappy in his current job, even though he’d been successful as a General Manager. He’s always been a hardworking and creative guy, so I suggested that he consider the same career leap that I took several years ago.
He thought it sounded amazing but worried that there would be a lot to learn. When I first started out I was nervous, too. But, luckily I had a mentor to teach me the biggest mistakes new investors make and that helped me to shrink my learning curve to be successful in real estate investing. I knew all my friend needed was the right training, tools, and resources. The very same ones I benefited from. So, trading in our bar stools for a comfortable booth and an order of pretzels and cheese dip, we settled in for a chat.
How to be Successful in Real Estate Investing, Even if You’re New
With all the shows on TV about buying, rehabbing, and selling houses lately, the idea of becoming a real estate investor is pretty popular. But, Pete had his head on straight when he acknowledged that, unlike how the shows portray it, the risks to investing in residential real estate are real. But, if you know how to make good investment property decisions, they are manageable. Here’s the list of common mistakes new investors make that I shared with Pete—and how you can avoid them.
Following Your Heart, Not Your Head
We’ve all gotten excited about an investment house. But, just because we find a home that has features that we love or would love to renovate as if it were our personal dream home, but, that doesn’t mean it’s a good investment property overall. Following your heart instead of your head can lead you to pay too much, either on the purchase price or on the repairs. So always make rational, well-considered decisions and resist acting immediately on impulses. Remember, you’re in business, and while it’s great to invest in a house you truly believe in, it’s important to never get too carried away in the excitement.
Incorrectly Estimating Rehab Expenses
Having an accurate assessment of how much a property will cost to rehab is critical in drawing up projections for your returns. Repairs such as plumbing or electrical can get out of hand price-wise fast if you don’t account for them up front. Of course, this is disastrous for your ROI. Make sure you use a solid real estate investment valuation tool to get accurate cost projections from the very start so your investment house doesn’t become a money pit.
Taking On A Bigger Project Than You Can Handle
Being ambitious is great, but you don’t want to overreach when you’re starting out, especially on your first few projects. Don’t take on an extensive rehab if you don’t have renovation experience or you’ll get overwhelmed fast. And, don’t take on too much debt for your first project, either. If the home does not sell quickly, you’ll get stuck with carrying costs that eat into your returns—and, potentially cause you problems with the hard money lender. Instead, begin with a smaller home that requires only minor renovations. As your confidence and experience level grows, you can try working on bigger projects. You want to set yourself up to succeed, so get a local real estate investing mentor now to help you consider your strategy before you get in over your head.
Putting A Home On The Market Before Renovations Are Done
You may think putting a home on the market while you’re still doing renovations will give you a head start in finding buyers, but it’s a bad idea that can reduce interest. When renovations are incomplete, buyers are unable to picture your vision in their heads. They need to be able to walk into a space and imagine themselves living there. Seeing your property while it’s still being worked on can make them pick out perceived flaws or criticize your renovations. So, give your property every chance to succeed and only show it when it’s 100%, move-in ready.
Buying Too High
If a property has a high sticker price, don’t buy it. You’ll have a lower margin for returns and feel pressured to list it at a price that’s so high it will be out of many buyers’ budgets. Then, you’ll be stuck with high carrying costs and low selling options. This is a common rookie mistake that new investors make when they either feel low on options or become overly optimistic about an expensive property’s after repair value. You can avoid this mistake by having a real estate investing lead generation system in place that brings consistent deals to you.
Unfortunately, any one of these mistakes can potentially end a career in real estate investing before you’ve really had a chance to begin. The two biggest assets you can have on hand to avoid them, however, are a strategy for buying investment property with enough upside that you have a little wiggle room when things don’t go as planned and a seasoned mentor to help you navigate the ups and downs. Luckily, that’s exactly what I started out with.
Make Returns, Not Mistakes
When I began in this field I knew better than to jump into a new business alone, so I became an independently owned and operated HomeVestors® franchisee. And, that choice has made the difference for me between a career full of struggles and one headed toward success.
I began with a week-long initial training program that explained all the basics of the business. Then, HomeVestors matched me with a seasoned Development Agent who gave me guidance any time I had a question. And, by using the proprietary property valuation tool, ValueChek®, I am able to evaluate each potential investment property I find, so I can be more confident when I make an offer. Like I told my buddy Pete, HomeVestors® offers such comprehensive tools and support to help you with your investing decisions, it’s hard not to achieve your investing goals.
If you’re not advancing as fast as you’d like in your career or if you dream of being your own boss, real estate investing could be right for you too. To learn about how to get the support and resources to help you to reach for success, contact HomeVestors today.
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