Many people have learned that Investing in real estate is not as easy as it seems. At least that is true for investors trying to get a fair deal. For those of us who have been investing for years, and learned many hard and expensive lessons, here are issues you should think through, understand, and consider before jumping into the real estate investing arena. These are in no particular order, since an individual would be smart to read and think through each and every “lesson learned” in the list.
1. Not penciling out your real estate deal
This describes about 80 percent or more of real estate investors.
They don’t take the time to put pencil to paper and make sure that the rental revenue from the property will be more than all the property expenses – and leave some monies left over to return to one’s bank account.
A negative cash flow property will virtually guarantee a measly – at best – investment return on your money.
2. Not penciling out your deal with conservative numbers
For those few fortunate ones who do know how to pencil out a deal, many use unrealistic numbers. They overestimate rental income, underestimate the vacancy, then underestimate the expenses associated with operating a property. That turns into low or negative investment returns for the property owner.
3. Getting renovation costs wrong
Most buyers have little idea how much it costs to renovate a property. They listen to the home inspector, their real estate agent, and just throw out a number like $25,000 for everything. Then they start getting bids for the work and quickly see it will actually cost $80,000 for everything. Word to the wise: Always do a lot of homework and be very conservative in your renovation budget estimates.
4. Underestimating renovation time
Additionally, inexperienced investors believe a good renovation can be done in 30 days, or 60 days. Many times it takes much longer to finish these projects than originally estimated. As a real estate buyer, you should talk to others who are experienced to get a realistic expectation of the time involved in a property rehabilitation.
5. Thinking something can only cost ‘that much’
It never does, it always costs more; many times much much more. So whatever the expense, renovation, service, contract, capital item, etc; chances are it will cost more than you think.