Real Estate tends to be a relatively forgiving investment vehicle. You can make some mistakes and still come out ahead, however, the more mistakes you make, the more you’ll hurt yourself in the long term financially.
Here are some of the Real Estate investing mistakes you must avoid:
1. Investing in “cheap” markets with no data to back it up:
I see this happen more commonly with newer investors who go in and choose to invest in the cheapest markets in the US, without regard to any data as to why they’re investing there. Markets that are extremely cheap are cheap for a reason, because not many other investors choose to be in those locations.
Usually low priced markets tend to have lower income tenants, which makes it very difficult to raise the rents and increase revenue. It also makes it difficult to collect rents as you have to deal with more non-paying tenants and evictions.
It reminds me of when Warren Buffett first started investing in contrast to how he invests today. When Warren Buffett first started, his focus was to buy companies that are, as he likes to call it, similar to cigarette butts that you’d on the streets with just one final “puff” before they’re done.
Later on he realized the many downsides to that style of investing and started buying amazing companies at fair prices that have big future potential and growth.
You want to apply the same mindset to apartment investing. Buy in the top performing markets that have the biggest growth potential ahead of them, and you will be way better off than if you were to invest in high-risk, cheap markets with little to no future growth.
2. Buying deals with no business plan:
If you want to make money on a deal, your best bet is to have a predetermined business plan in place to improve the property’s income.
Buying in an appreciating market can still make you money if you do nothing to a property, however, you don’t want to just rely on the market to help you. You have to have a strategy in place to improve the property.
3. Choosing a bad Property Management company:
A bad property management company can significantly affect how well your property operates. You want to make sure that you interview multiple property management companies and ask for referrals before you choose who you work with.
We also like to visit other properties they manage in the area, as well as their marketing efforts to drive new tenants, before we choose to work with a management company.
These are just a few to keep in mind, but as you delve deeper into Real Estate investing, you’ll find more things to keep in mind. The nice thing about Real Estate is that usually, once you know what to watch out for, you tend to see less surprises as long as you do your proper due diligence and follow a specific criteria when buying or investing in deals.
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