So you want to be a real estate investor? Here are the top 5 mistakes made by investors old and new.
1. Not conducting adequate due diligence
Purchasing an investment property is all about profit, maximizing revenue and minimizing expenses. Verifying the existing rents and current expenses should be paramount to confirming the “as is” profit. Fast forward and project what property expenses are likely to occur in the next five years and determine how that will impact future profit. Are the rents likely to be maintained at current levels over that time, or can you expect them to increase or decrease?
2. Buying based on future value
Buying based on what a property “could be” or “should be” worth in terms of property appreciation, is confirming to the world your ability to predict the future. If you have that visionary skill then your time is better spent focusing on the bigger problems facing the planet. A still bigger deadly sin is paying a price premium based on what the property “could be”. Buy based on reality versus speculation.
3. Not maximizing your financing options
Finding a property to purchase is key, but finding the most cost effective way to pay for it is critical. Financing costs are likely to be the biggest expense associated with the property. Using an experienced commercial mortgage broker to review your options is a wise investment. Maximizing loan to value opportunity in combination with preferred rates will save you thousands and position you for the next purchase.
4. Blindly following the advice of your real estate team
It is tough to find good help, people that are competent and have your best interest at heart. Advice flows freely when your team has no vested interest in your operating results. One cannot be an island. You cannot do it on your own, but if your real estate guru makes their money teaching as opposed to investing themselves, you might ask why they don’t implement their own strategies?
5. Poor record keeping
Ever heard the expression “what gets measured gets managed”? Keeping accurate, up to date records helps with your decision making moving forward and makes it easier when it comes time to sell, refinance or to file taxes. Showing a profit is a good thing, so don’t be penny wise and pound foolish when it comes to reporting income. Paying less on your income taxes may save you money in the short term but will cost you money from a big plan perspective. The rate premium you pay when financing poor cash flowing properties will easily negate those hidden profits.