“Risk comes from not knowing what you’re doing.” – Warren Buffet
When Mr. Buffet said these words, he meant to emphasize the importance of fully understanding the risks of business in which you’re planning to get invested. This is particularly true when buying investment property. After all, the sole purpose of these properties is to obtain maximum gains and profits. Your large real estate investment might come with high returns, but it also carries high risks with it. These risks could be and should be dealt with promptly to avoid any further complications. To ignore these risks would only put your buying of rental property in jeopardy. As you keep reading, we will highlight some of the key mistakes that investors make when buying investment property. Avoiding making the same errors will help you make sound real estate investments.
Look for these mistakes when buying investment property
For the most part, real estate deals follow the same process irrespective of size and cost. Whether you are buying a small condo near your home or a commercial building in New York City, you need to avoid these frequent missteps.
1. Not understanding the industry
This is the most redundant mistake that people make when buying rental property. The fact that you have enough money to get into a large and profitable business such as real estate isn’t enough on its own to make your investment fruitful. Many investors are tempted just to hire a property management company and let them handle all the woes and worries of buying an investment property. While this move is extremely helpful in reducing stress and streamlining your process, it does not mean that you should just put your hands up and do nothing. Make time to learn about the industry. Read online and print sources, and take a course, if feasible. By the time you’re out hunting the best investment properties, you should be able to figure out the basic pros and cons of those properties.
2. Don’t rush to buy an investment property
It’s only human to fall for the first property that you visit. It might check all the boxes and seem fine, but you should never do this. Buying rental properties is complicated. Real estate is a massive business and has vast opportunities. No matter how tempted you are by the first or even the first few properties that you see, don’t make up your mind until you have at least visited a dozen or more properties. Also, a second opinion doesn’t hurt either. Get an expert opinion from a fellow investor or real estate agent before pulling the trigger.
3. Waiting too long to buy investment property
If this sounds contradictory to our above point, you are not mistaken. Buying rental property has a lot to do with the right timing. This isn’t something that you can learn from a book or an expert; it just comes with experience and willingness to take a risk. While it is not wise to buy the first investment property that you see, some people take it way too far and keep on waiting for the right time. Sadly, it just never comes. Here’s a good piece of advice: Don’t assume that if the price of the property has risen over a period of time, its value has also increased. Don’t forget to consider factors such as inflation, increased taxes, etc.
4. Incorrect estimation of price
There may come a time when you might be feeling weary due to the whole process of buying an investment property. This is the time when you should not let your guard down. You might fall for something that isn’t worth the money you are willing to pay. In times like these, if you feel that you cannot make a sound judgment, it’s better to speak with someone about the unit. It will be worth it if it ends up saving you a good deal of money.
5. Letting emotions get in the way
Some people say emotions have no place in business, but I’m sure you’ll be emotional after seeing an amazing return on an investment property. However, you should never let emotions dictate a business decision. It’s normal for people to not buy or sell properties because they feel emotionally attached to the property or the area in which it is located. If you ever have a similar urge, remember that your ultimate objective is to earn money from your real estate investments. All other factors are irrelevant as long as you are meeting this objective.
6. Failing to evaluate the area
Some properties are perfectly built but inappropriately located. When you visit such a property with the intention of buying a rental property, you may lose track of your external objective. This can go all wrong if you are not careful. Remember, a property is more than just how it appears on the outside; it has a lot to do with its surroundings as well. Its value may vary significantly based on these surroundings.
7. Not accounting for all property expenses
Buying investment property isn’t the whole part of real estate investment. The costs that investors have to bear after buying rental property are overlooked many times. While this may seem somewhat unrelated to buying the unit, it actually isn’t. Your expenses will depend on the type of property you have bought, the area it is located in, and the people who live around it. You might find the deal of a lifetime, but have you looked at taxes and other issues? If you live in a flood zone, you will need additional insurance that can eat away or eliminate your profit.
8. Using manual methods to manage
If you are considering buying a rental property, have you thought about managing tenants? There are several primary tasks to managing your rental unit: leasing, tenant screening, collecting rent and maintenance coordination. Every investors dreams of growing their portfolio to hundreds of units. To do so, you will need an efficient management process that helps reduce stress. Utilize a free service that provides all the necessarily tools specifically for landlords all on one platform.
Choose your management style
Once you close the deal on your rental unit, you need to determine how large of a role you will play in managing the property. If you have the time or want to reduce expenses, you can self-manage your rental. Burbz makes it simple to advertise your property and coordinate rent collection, maintenance, and other day-to-day activities.
Burbz gives you total control over how involved you want to be in managing your rental.