8 Real Estate Investing Mistakes to Avoid
"Real estate is a tangible asset with inherent value unlike many other investment vehicles such as stocks, which many consider as gambling."
1. Buying without researching
Rushing into real estate without understanding what you're getting can lead to bad results. Just because real estate is doing well doesn't mean it will turn out to be a good investment for you. Stock investors are often told to "buy low, sell high" and that same rule can be put to use for property investments.
2. Developing a tunnel vision
3. Going it alone
Owning a commercial or residential rental property can be both time- and capital-intensive. Trying to handle it all solo can require a level of focus and commitment that may not be realistic for every investor. A simple way to avoid that mistake is building a team from day one. That may involve investing with a partner or working with a broader group of individuals that includes an experienced real estate agent, an attorney who's well-versed in property law, professional contractors and a property management company. Having support can make investing in real estate a smoother experience, with less room for error.
4. Relying on bad advice
When seeking out help in making decisions regarding property investments it's important to go to the right sources. Making an investment in real estate, especially for first-time investors, can be daunting and nerve-wracking. Often, people ask friends and family for their opinion more for reassurance than for legitimate guidance. What they should be doing instead, is seeking counsel from real estate professionals or an investor with a lengthy track record of buying and selling properties. These individuals have the knowledge and experience to provide more reliable advice.
5. Assuming it's easy
Just like stocks, mutual funds, bonds or other investments, real estate requires a certain amount of know-how to navigate. Both large and small real estate investors can make the mistake of thinking that investing in property is easier than it is. This can be exacerbated in bull markets when real estate is going strong because people tend to forget about previous downturns. Unfortunately, to be consistently successful in real estate over the long haul requires more skill than luck.
6. Chasing bargains
Another common pitfall among real estate investors is only looking for a deal when buying a property. If you're going to make long-term real estate investments, you don't need to buy at a major discount. You just need to do deals that make sense, because, over time, you're going to be building equity. Many investors limit the properties they can buy because they're hoping to land a major discount with value, which isn't a realistic target in the current market environment. By maintaining a long-term outlook, investors can avoid the bargain hunter mentality and focus instead on growing their property portfolio.
7. Not having an exit strategy
Real estate can be a good buy-and-hold option but failing to develop an exit strategy can be damaging. We has seen this scenario play out firsthand, with investors selling a highly appreciated piece of property without a plan in place for what to do with the funds. Having an end-play for real estate investments from day one can help avoid costly situations when it's time to sell.
8. Overlooking the bigger picture
The worst mistake with real estate investing may simply be not considering how to utilize it within a broader portfolio. Many investors make mistakes when they don't understand how real estate fits into their overall strategy that includes diversification, long-term appreciation, liquidity needs and cash flow. Having a financial plan that incorporates real estate begins with understanding investment goals, risk tolerance and time horizon. These are things a financial advisor can help with. Once investors understand what strategy will support their plan, they can determine the right mix of asset classes to create success.