10 LETHAL MISTAKES REAL ESTATE INVESTORS MAKE
Rental Properties are a business- not a one-time transaction. Look at owning the property as a long-term investment (20 plus years). If you were going to be involved in a business for over 20 years, wouldn’t you have a plan? How many properties do you want to buy in the next 5 years? How will you handle property management? How will you handle tenant calls? You should have a plan to buy, rent, and manage the properties (or have a property management company help you).
THINKING YOU WILL GET RICH QUICK
Real estate is not a get rich quick business. Do not go into it thinking you are going to get rich in 1-2 years because it will not happen! Real estate can help you achieve wealth, but it will take some time.
Don’t try to be the lone ranger! Get help when you need it. Treating rental property as a business will help you achieve this because a true business owner does not do everything on their own. This will also help lower the stress of owning rental property.
PAYING TOO MUCH FOR THE PROPERTY
When you pay too much for a rental property it is very tough to afford repairs. As a Grand Rapids property management company we see water heaters or furnaces go down every month. If you overpaid for the property, it makes it tough to fix them the right way or replace them. Let’s be honest, paying too much takes all the fun out of owning rental properties.
DO YOUR HOMEWORK!
Does this property match your long-term plan? If not, then move on to the next property. If you purchase a property that doesn’t match your plan, you could be doing a ton of extra work for one property. Make sure you look at the area, honest rental rates, etc. These are all important when looking for properties!
Make sure you check the property out very well when looking to buy one. Nothing is worse than buying a rental property and the water heater dies the next day. Make sure you know the condition of the appliances, heating/cooling system, water heater(s), roof, and any other large ticket items. These are needed when you are putting your budget together.
When you purchase and manage rental property, it will NOT always be sunshine and popsicles. There will be problems and you need to plan for it. You need a cash reserve! Furnaces are going to go down, water heaters will give you problems, and you will have to paint and carpet again.
FOCUS ON ONE DEAL AT A TIME
Don’t go out and try to buy five different buildings in five months. Focus on one deal, get the property stabilized and your cash flow coming in, then move onto the next. Surprises happen and if you are caught in five different deals, it makes it difficult to manage the property the right way. It will also reduce the stress if you focus on one deal, then move to the next.
DON’T GET YOURSELF IN A CORNER
Do not get into a deal that you can’t get out of. You could have a deal going and your property manager tells you that the property will need 15K worth the work before it’s livable. You should at least have an inspection period so your HVAC person, property manager, etc. can go through it. If they find something you don’t like, you can get out of the deal.
ESTIMATE REPAIRS CONSERVATIVELY
When you are looking at repairs, ask the professionals what it will cost. A water heater isn’t going to cost $500, it will be more expensive than that. When you estimate low, you are only fooling yourself. If you estimate conservatively and the bill comes in lower, you win. If you estimate conservatively and the bill comes in at your estimate, you will still win. This is one area that we feel is very important. Paint, flooring, windows, lights, appliances, and HVAC systems are not cheap. Make sure you budget correctly for them!