Avoid These 5 Pitfalls of Residential Real Estate Investing

Posted by Michael Miller on July 25, 2019

Even an experienced investor can make a mistake—getting involved with the wrong property at the wrong time and/or at the wrong price, for instance. If that has happened to you recently, take time to assess your performance and make sure you avoid these pitfalls that are limiting your success.

Sticking With Markets That Don’t Deliver

Perhaps you have done well with a market in the past and have stuck with it in the hopes of duplicating your success. If the market has ceased to deliver, it is time to move on to new markets. Get back to basics by researching opportunities in markets with rising property values and robust sales activity. Bring your tried-and-true practices of renovating homes or managing properties to duplicate the success you’ve had elsewhere.

Being Overly Optimistic

Every successful investor needs a certain amount of optimism. But there is a fine line between being optimistic and being unrealistic about your investment’s prospects.

Being overly optimistic means you are likely to assume best-case scenarios over more likely but less desirable scenarios. Being realistic means you will prepare for a full range of scenarios and that you are well-financed enough to weather the outcomes that fall short of your most optimal projections.

Spending Inappropriately

If you are renovating a property, it is important you not overspend and drive down your profits. At the same time, you need to be careful not to skimp on your renovation budget, since that will make your property more difficult to sell.

The key is to find that sweet spot, where you are spending an appropriate amount on renovations to achieve the optimal asking price that the market supports.

Conducting Inadequate Research

Failure to do adequate research can trip up even the most experienced investor. Think about scenarios in which you have fallen short in the past. Was it because you thought you knew a market better than you actually did? Or because you listened to local scuttlebutt without verifying what you heard?

While you may be an experienced investor, do not overlook the basics. Follow the steps that have given you a track record of success—and certainly, doing research is among them.

Falling Victim to Bad Timing

Those who weathered the 2008 housing crisis know all too well that in real estate, timing is everything. That adage still holds true today. If you don’t move fast enough, you are liable to get shut out of a property purchase. If you sell too early in an emerging market, you will miss out on a pricing surge that would have boosted your profit.

Always be ready to respond quickly to an opportunity by having financing, paperwork, procedures, and personnel in place. Also do your homework so you can recognize when it is appropriate to put off a deal until the peak moment of profitability.

In real estate investing, avoiding the wrong moves is just as important as making the right ones. By recognizing potential pitfalls, you are in a better position to maximize your investment results.

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