5 Common Mistakes You Want To Avoid When Investing In Real Estate
Things I wish someone had told me before I started to invest
The real estate market is a huge market that you can invest in as it expands every day significantly but at the same time, this is a highly expensive market to invest it that also offers the biggest profit in return, which is the ultimate goal of every investor. For example, Luxemburg is the most expensive country in terms of apartment prices as it costs 7,145 EUR per square meter, while Bulgaria has the lowest price of 550 EUR.
When it comes to investing in real estate properties, you should know that this is far from buy-the-first-property and take the profit, as it is far more than that. Whenever you invest in something, you want to know what you should avoid maximizing your revenue. This time, we talk about the 5 common mistakes that you should avoid when investing in buying a new property that you will later on sell for a higher price so you could know what to avoid.
1. The Lack of Proper Research
Before you buy a TV, car or video game, you make sure you research it so you could know whether you want it really and whether it offers exactly what you want to have. You compare the different models, brands and sizes to make sure you choose the most optimal and most suited model for you. It is the same thing with investing in the real estate market — doing the proper research is a crucial thing for making an ideal decision that will make you profit.
Whether you are a land developer, a flipper or a future landlord that will rent the property, you need to make sure you know enough information about the specific property. The first thing you want to know before you make a purchase is the neighborhood where the house/flat is located in. If you buy a property that is within the shady neighborhood or near the all-night-every-day party house, your property will have a lower value.
There are a couple of questions that you should ask about the property you plan to buy to get a better picture of the area. However, the questions do not relate only to the surrounding area, but also to other things that are in regard to the estate. For example:
· Is a property near the mall or some fancy restaurants?
· Is the property in a zone that is prone to flooding (potential termite problems)?
· Do you have a lot of appliances to replace the property?
· Why does an owner sell the unit?
These are highly important questions that help you to complete your research. Each of these could contain more sub-questions but these are generally the main ones you should start with. After you answer these questions, you can proceed further by checking the company that is selling the units.
2. Failing To Check The Reputation of A Company
The fact is that there are a huge number of construction companies that build new apartments and houses, which means there must be some kind of scam or poor service. Don’t get this wrong — no one said you don’t need to invest in this business, but rather to be careful as you are dealing with huge amounts of money. Before you buy something, make sure you research the company that is offering you a deal.
Make sure you check the licenses of the company you are planning to deal with just to make sure that they possess these as you don’t want to deal with a company that is shady. The best thing would be to check their reputation online, as well as through the word of mouth — if someone of your friends bought a flat/house from them, they will give you the correct first-hand information. Also, ask them to show you the procedure of the buying just to make sure they know what they are doing.
Ask them to show you the references of the past sales, to confirm they offer full support throughout the entire process of buying and selling. You need to make sure that you can count on their professional help in case you bump into issues that might be too complex for you. Should you find anything suspicious or irregular, make sure you avoid that company/agency and look for others.
3. Picking The Wrong Type of Property
Once you confirm everything is fine, the very next step is to find the right type of property for your investment. This is something that depends on you and your financial capabilities, but also on your expectations. If you are looking to get a unit that you will rent but you don’t want to invest a lot of cash, you probably don’t want to buy a huge unit that is hard to rent.
On the other hand, if you are looking for something that will be a long-term investment, like a backup pension fund, then you might want to go with a big space that you can rent out to banks, food-chain markets or other commercial stores. The common belief is that this type of property is the best as you can collect pretty big monthly rents, especially if the location is right. However, do also remember that you have a bigger tax to pay in this case.
Also, make sure you consider the location as it can be crucial when it comes to renting or selling. Remember that no one will consider renting your apartment if it is not located well — would you rent an apartment that is in a bad neighborhood or next to the construction site? You probably wouldn’t as there are more downs than ups when you look at it generally.
Finally, make sure that you inspect the property before buying so you could know whether you need to renovate it and invest more money before selling it for a bigger price. The older homes may come at a lower price, which seems attractive, but in reality, you will likely need to invest the additional money to get a better price. Should you add the location of it, you can be sure that is better to buy the worst house in the best block/area than the most beautiful house in the worst neighborhood.
4. Saving on Legal Services & Insurance
This is no cheap investment by any means and doesn’t even think to save money on legal/attorney services and insurance as this can cost you a fortune in the future. Make sure that you have a realtor attorney who will be there for you in case you get confused and in dead-end, even if you are an expert with long-term experience. Make sure you choose a good and reliable attorney who knows real estate law well.
Insurance is a must, especially if you buy older homes that require renovation and home improvement projects. But, in any case, it may happen that your property suffers a vandalistic attack or even worse — a natural disaster. If your property is not insured, you are going to be liable to pay for every single repair or home improvement project.
Additionally, if you are planning to sell the unit, it is much easier to sell an insured one than the one without the insurance. No one would buy an uninsured property, which is going to be less valuable in this case as it is not insured. Therefore, invest a bit of money to sleep peacefully, without the concert what happens if something happens.
5. The Improper Assessment of Your Financial Capacity
Like it is the case with every investment, you must have a proper plan so you know how much money is going to be enough to cover everything, including taxes, insurance, small repairs etc. Without a proper plan, you may end up in a situation where you have to borrow money to complete the contract or pay for something. You must know how much you can afford to spend so you could know what is in the range of your buying power.
Define the monthly expenses, repairs, utility bills, the tax for the attorney and agent and all other potential expenses and put them all on the paper. Sum everything up to get the final cost so you could know whether you can afford it or not. If you are a flipper and you plan to sell the house quickly after you buy it, do make sure you define all the expenses prior to the purchase to avoid problems.
The Summary
If the real estate investment business was easy, everyone would do it for sure. But in reality — it is easy as long as you plan ahead, save money and know what you are doing. Don’t buy just because you have extra money to spend, as this is the biggest mistake.
Make a plan, a vision and work towards it. Hire professional agents that you can talk openly to and present your ideas so you could get professional advice about your plan. The easiest money is to give money, especially when you have it a lot, but the hardest thing is to know how to use that cash to earn more of it!
