Your first real estate investment will be a learning process. While you may make a few mistakes along the way, educating yourself may help you avoid some common pitfalls. From misjudging resale or rent value to not doing proper due diligence, new real estate investors are at risk of losing serious cash if they’re not careful.
Mistake 1: Misjudging Resale or Rent Value
If you are unable to determine the potential value of an investment, it is difficult to make a confident purchase offer that meets your profit objectives. It’s an important job, but it’s not easy. Properly evaluating property is a skill every real estate investor must commit to learning. This important skill can contribute to a successful investment career.
On your first real estate deal, you may not yet be a value expert. Here are a few things you can do to help yourself:
- Reduce the market to a relatively small, manageable area.
- Study all the transactions in the market area.
- Hire a professional for assistance.
Mistake 2: Underestimating Repair Costs
At some point, you may underestimate repair costs. It is important to avoid the enormous costs that could cause you to run out of cash or face other problems. To prevent large mistakes, learn a good repair estimating system and get help from other knowledgeable investors or contractors.
Mistake 3: Not Doing Proper Due Diligence
Some investors close deals quickly without completing proper due diligence. A proper due diligence process may allow you to withdraw from any purchase if you discover a problem.
Here are a few things to do during your due diligence process:
- Obtain a good professional third-party property inspection
- Analyze repair estimates
- Evaluate zoning and local ordinances
- Get a professional third-party opinion of the value