4 Common Mistakes That People Make When Investing in Real Estate

Real estate is one of those high-value investments that a lot of affluent, new investors have their eyes on. After all, there aren’t many investment options out there that allow you to enjoy great returns, like real estate. This is especially true if the economy is in your favor.

With a market value set to reach $30.5 trillion by 2031, real estate remains one of the biggest investment options. Unfortunately, there are several dangerous mistakes that can be made when investing in real estate that you want to avoid. In this article, let us examine four of them.

1. Underestimating Expenses

Real estate is one of those industries where investment amounts can vary wildly. It wasn’t that long ago when $350,000 was the average price of a property. Today, however, you are looking at an average rate closer to half a million dollars. These figures change with the market, and it takes a bit of experience or guidance to understand property cost factors. 

Similarly, there are several costs that can turn what seemed like an attractive investment into a really bad idea. For instance, if you decide to save costs and buy a slightly older home, get ready for constant calls from your tenant that something is broken.

From suddenly malfunctioning HVAC systems to plumbing issues, you can quickly find yourself overwhelmed. With how frequent some issues can be,  it can be truly frustrating if you were expecting a hands-free experience.

2. Lack of Diversification 

Another common mistake that can be made is not diversifying enough. Investors often fail to invest in a variety of property types and locations. Often, a mix of residential and commercial properties is a safe way to protect yourself from economic downturns. 

Diversification also includes having a variety of investment strategies. A lot of new investors tend to focus solely on rental income and disregard capital appreciation. It’s natural to avoid unknown investment opportunities, but this ends up leaving a lot of potential unexplored.

Instead, if there are areas that you aren’t comfortable with, such as renovation or development projects, seek to learn more about them. This is a far better approach than simply avoiding them altogether.  

3. Insufficient Data Analysis

Blooma states that in the old days, real estate advice could be boiled down to the mantra of “location, location, location.” However, this is no longer enough. The real estate market today has way too many factors and variables at play. Sure, new investors can trust and seek mentoring from industry experts and “learn with experience.” 

However, this is often a long and dangerous path that can see their investments lead to both successes and failures. 

For those who don’t want to take such risks, embracing the new age of data analysis is an obvious solution. 

There are a lot of great real estate data analytics solutions that can make investing a breeze. They can help you analyze key metrics such as cash flow, net present value, and rent roll analysis, among many other factors. 

Simply put, data analysis tools help you make investments that are driven by data, which is an invaluable asset. 

4. Underestimating the Impact of Tenant Quality 

This aspect is primarily a concern for investors who focus on rental income. Unfortunately, finding reliable tenants is never guaranteed. A quick perusal of online landlord communities will reveal the number of people struggling with tenants who pay late. 

Another common issue you can encounter is high tenant turnover, which can make the income from your properties feel extremely unstable. Sometimes the struggle to find a good tenant is so tough, it makes you wonder if investing in real estate was a mistake. 

One way out is to ensure you have a rigorous screening process, which can go a long way in weeding out troublesome tenants. 

Conclusion

Real estate is a perfectly good investment, but it does require that you know how to avoid common mistakes and pitfalls. Many of the resources available were created in earlier times when aspects like “location” were overly focused on. Today, real estate investors have far more variables to consider. 
Thankfully, technology and online communities exist, which offer useful resources. The thing to remember is that real estate investment often tricks new investors who expect it to be a passive income cash cow. However, the reality is that one needs to commit a good amount of effort and attention for success, especially in the context of rentals.

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