There are many commonly known missteps when it comes to real estate investment — like paying too much for a property — but even some seemingly minor mistakes can bring major headaches for investors of all levels.
Here are five mistakes that are big enough to scuttle any investment property project:
1. Skipping Due Diligence
Excitement over a potentially lucrative deal or a hot new property can cause many investors – even seasoned pros – to speed up the process. But even on a turbo setting, take time to do your research. Look into current market conditions, renovation costs, financing details, and other factors that are part of due diligence. The more you know upfront, the fewer unpleasant surprises you’ll face down the road.
2. Flying Solo
Even maverick entrepreneurs don’t build a company alone. When you’re doing a fix-and-flip project, there will be numerous people involved, from lenders to realtors to contractors. Seeing yourself merely as an employer can cause you to miss the power of teamwork, asserts Scott Parkin, a Minneapolis-based realtor. “When you work together with people, instead of simply having them work for you, something important happens,” he says. “You get what you want, faster and more easily.” Everyone will be more empowered if they’re part of a team.
3. Miscalculating Estimates
On any deal that involves flipping properties, you’ll likely have an abundance of potential expenses. Some of these are provided by contactors, but other times, you’ll have to rely on your own experience or insights from other professionals to come up with these estimates.
Beware of being too optimistic when it comes to standard costs, Parkin advises. For example, you may think staging will only be $2,000 because that was the price during your last flip. But the current project could be a much larger property, or one that involves specific furnishings, like those needed in a game room or home office. Get new estimates for every project and keep track of industry trends — like increases in granite countertop prices, for instance — so you can prevent unexpected costs that whittle down your profit margin.
4. Misjudging Cash Flow
When dealing with multiple properties, cash flow can be a big issue. For some, it’s enough of a problem to knock them out of the game. Not only do you need enough to insurance to buy a property and renovate, but you also have to consider realtor fees and property management. Also, if a property sits on the market for a few months, you’ll be on the hook for the mortgage, taxes, and maintenance costs, as well as homeowner or condo association dues.
5. Forgetting an Exit Strategy
Even before taking the plunge and selecting a property, you should have an idea of the variables that might cause you to exit the deal, advises Brandon Turner, vice president of growth and communications at BiggerPockets, a real estate investing social network. If the market suddenly turns cold, or you feel overwhelmed by too many projects, you need to have a smart way to bow out. Even deals that are proceeding smoothly require an understanding of an endpoint.
“Be sure about every stage of a deal before you purchase a property,” Turner says. “That will save a great deal of time and money along the way.
5 Arch Funding Helps You Avoid Missteps in Real Estate Investment:
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