Common Mistakes Real Estate Investors Make
Throughout our culminated decades of experience at REC we’ve seen investors make a multitude of miscalculations, many of them being the same errors. It’s easy to get lost in this daunting experience, especially if you’re new to it. The 4 most common mistakes we see are people getting too emotional about the property, not running the numbers properly, not having an exit strategy and not taking action. Like everything else in this business, you are capable of just about anything as long as you proceed with your due diligence.
People get too emotional about the property. When it comes to the home you need to see it as an investment, it’s a transaction. The curb appeal isn’t what matters here. You have to look at the potential of the property. The wallpaper or the furnishings don’t matter, it’s what you can turn the property into. We’ve also seen people get too enveloped with emotion in negotiations to the point where objectivity is lost, sometimes where the numbers don’t even work out anymore. Any sense of pride or ego just creates a bigger hurdle to overcome. With any issue that arises with the property, maintenance can solve it. Whatever that costs will be a drop in the bucket compared to what the investment will climb to. Any problem that arises surrounding the property is not worth the stress, just think in the long-term.
A consistent problem we see is people not running the numbers correctly. So many underestimate their expenses, which include money for repairs, vacancies, land fees, etc. On the other side, we see many people overestimate their rents. To remain safe, we recommend that you overestimate expenses and underestimate rents as monetary issues won’t be at the forefront of your mind. Always air on the side of caution when it comes to large investments.
Planning your exit strategy is an absolute necessity when you’re deciding on the property you wish to purchase. You need to ask yourself when and how am I going to get my return? Will it be through refinancing or selling? If it’s pre-construction, will you be selling it when it’s built or renting it out? Make sure you know what you want out of the investment, this way you know when to expand your portfolio or when to comfortably get out. Educate yourself on current market conditions, financing rates, property values, but also reflect on personal factors (ie. an upcoming retirement or if you have child going to a post-secondary institution). We advise re-evaluating your plans every 5 years to make an estimated decision of what you want, as your goals might’ve changed.
The final necessary issue we see is not taking action. Yes, this can be an intimidating process, but if you’ve done all of the necessary steps you are ready to go. We’ve seen “paralysis through analysis” so many times, where people keep on hesitating as market prices rise. As soon as you’ve done your research and your expenses are in order, the best time is always now.