4 Things to Avoid When Buying An Investment Property
Thursday Aug 11th, 2022
Real estate can be one of the most secure investments out there, and buying an investment property is an exciting endeavor. We’ve all heard the stories of real estate investment success, and who wouldn’t want a piece of the action? As an expert in real estate investment, having a plan is essential. In fact, it’s my motto. Whether you’re a first time investor or seasoned pro, be sure to avoid these common mistakes:
1. Skimming through the math
If it sounds too good to be true, it is. But also, sometimes things look much easier on the outskirts than when you get into it. That’s why it’s important to fully crunch the numbers and make sure that the profit margins are worth your investment. When it comes to earning income from your investment portfolio, make sure you investigate the numbers hard, and don’t compare it with other properties you might already have. Each investment should have it’s own analysis done, and to see if it is a viable deal, look at it as if it’s your only source of revenue.
Find out the details regarding your profit margins based on a full understanding of your mortgage rates, local rental rates, management fees, and closing costs because they will impact your finances long-term. So will taxes, landlord insurance, and regular property maintenance. The more detailed you are, the better you can calculate your true ROI.
2. Prioritizing a Fixer-Upper
Fixer-uppers can be exciting, and sound great in theory. The low purchase cost and potential savings with DIY renovations can look like money bags waiting to be collected. The reality is, that renovations rarely go to plan and usually take much longer and are more expensive than you initially think.
This will mean that you may lose out on valuable rental income as your property sits vacant during renovations. If you are hoping for long-term rental income through your investment, don’t look at properties like an investor who wants to fix and flip. Rent-ready properties are key to ensuring that you start collecting rental income right away.
3. Thinking you can do it all yourself
DIY investing and property management does have its benefits. You can save a lot of money if you can take care of things yourself, and yield a higher ROI. Many people who start out take this route. However, the truth is we all need a little help. Advice from seasoned professionals is the smart thing to do.
Smart investors seek out the advice of industry experts, tax experts, lawyers, contractors, investor-friendly realtors, and fellow landlords to ensure growth and avoid legal issues. The good news is, I know the best of the best and can help you create a network of reliable industry professionals that ensures you always have a number to call when a problem arises.
4. Adding to your portfolio fast
You might be tempted to take your first income from your initial investment and put those funds to buy another property. And yes, building your portfolio is exciting, but I would play it a little more strategic than that. Like I always say, strategize to maximize! It is generally advisable to use your first funds to pay down your debt first before reinvesting. Doing it this way keeps your finances protected during an unexpected event or an economic downturn.
If you are positive that your first investment will bring in more profit than the interest rates on your current loans, then you might be in the position to go ahead and add to your portfolio. But it’s better to pay off what you owe first, before taking on more than you can handle.
Real estate investing pays off, but buying an investment property is a large financial undertaking that should be carefully considered. With careful planning, a solid strategy, and help from experts, you can create a long-term, life-long source of income and grow your portfolio like a pro. If you’d like to learn more, or want a consultation, contact me today.