Common Mistakes Rookie Real Estate Investors Make
You’re looking at older generations and see how much they’ve made on real estate. You see skyrocketing prices in cities like Los Angeles, New York and Miami. So you’re looking to invest in real estate for great long term returns.
Stop!
Real estate can be a great investment long term in the right market. Here are some of the most common rookie real estate investment mistakes so you can avoid them before you even start. Have a read and then crunch some numbers. Then you will be ready to decide if investing in real estate is right for you.
Assuming 100% Occupancy
Rookie investors look at how much revenue they can earn by multiplying the monthly rent by 12 months without considering any vacancy. Occupancy rates vary based on many factors such as location and type of rental. A small, one bedroom apartment in downtown Los Angeles will likely rent much faster (and have a lower vacancy rate) than a four-bedroom house in Arkansas. Start with at least one-month vacancy per year and then adjust higher or lower based on your type of rental and local conditions.
Value Your Time
If you look at the cost of a property management company and cringe, you may not be accurately valuing your own time. Many first time rental owners don’t accurately estimate and value the amount of time they will spend finding tenants, chasing rent, doing minor repairs, etc. Owning a rental property can be a full time job. Budget the number of hours you think it will take to manager your new rental property, then double it. Otherwise, hire a professional.
Including all the Costs when Budgeting
Similar to valuing your own time, make sure you value every single expense throughout the year. If the stove breaks down and needs to be replaced did you budget for that? How about property taxes, utilities, mortgage payments, and general maintenance? It is safer to overestimate the cost and underestimate the revenue a property will generate in order to determine if a rental property will break even or cost you money every month.
Not Having an Exit Strategy
Before you buy an investment property (whether it’s your first or your tenth), make sure you know how you will get out. Are you leaving these properties to your children? Looking for consistent retirement income? Want to sell within a couple years? Knowing your goals means you can choose the best path to achieving them. Begin with the end in mind and you will go from a rookie investor to a real estate regular.
Now that we’ve gone over many of the common rookie mistakes that real estate investors make, it is time to sit down and figure out it this is still something that you want to do. Remember, real estate investing can be a fantastic financial opportunity – if you do your research and go about it the right way. So, sit down, take a deep breath, crunch some numbers, and good luck!