If you have the money in the bank to manage them, real estate investments can seem like financial no-brainers. Here is the ultimate in passive income, and you’re probably keen to sign on the dotted line and get started already!
But, did you know that a surprising amount of real estate investors (approximately 90%, to be exact) actually end up losing money on certain properties? In fact, if you aren’t careful, investments here could see you losing almost as much as a bad choice on the crypto market!
In this article, we’re going to consider the key mistakes that turn properties from sure deals into poor financial choices, and how you can ensure that fate is never waiting for you.
# 1 – Settling for Negative Cash Flow
Negative cash flow real estate refers to properties that drain your bank account faster than you thought possible, without any real promise of returns. A lot of real estate investors fall into this trap, especially when they’re first getting started and think that a positive negative cash flow is right around the corner. But guess what? It rarely is.
After all, no one can foresee real estate markets, especially not across the events of recent years. If a property isn’t making money right now, then you need to live under the assumption that it never will.
Instead, you want to look at properties that will earn right away, as these provide the ongoing income that you need to hold onto them for a far longer period. This will see you playing the real estate long game, ensuring that your loans, upfront costs, and general renovation expenses all reduce as you should reasonably hope.
# 2 – Keeping Too Little in Reserve
If you’re desperate to get off the real estate starting line, then it’s easy to jump into an investment the moment you have enough in the bank to do so. Unfortunately, just as you shouldn’t pile your life savings into volatile stock markets, you’ll also want to keep at least a little back (or save up for a little while longer) instead of putting all of your eggs in a real estate basket.
While real estate investments are beneficial because they’re a little less volatile than ever-changing stocks and shares, these investments definitely aren’t variable-free. Rental properties, in particular, often call for hefty upfront investments at a moment’s notice, for everything from sudden leaks to entire HVAC replacements.
If you don’t keep anything in the bank, then these unavoidable issues could easily tip the scales and end your real estate dreams before they’ve begun. Keeping cash in reserve makes it far easier to weather these variables and keep hold of your most lucrative investments.
# 3 – Going Down the DIY Route
Whether you’re managing a rental property or trying to flip an entire house, a DIY approach may seem financially logical, but did you know that often isn’t the case?
While you can certainly do some maintenance or renovation work yourself, it just isn’t feasible, financially or otherwise, to tackle an entire project without professionals. For one thing, the risk of damage and the high chance of taking a long time on each task can leave you without an income for potentially months on end. You also can’t guarantee that you’ll have the time or resources to invest in that project later on.
Having a trusted team of professionals and the money to pay them at a moment’s notice is a far more sensible option, and tends to be a lot more financially lucrative, as well.
# 4 – A General Lack of Education
You don’t need a degree in real estate to get started investing, but failing to educate yourself in any way is guaranteed to lead to poor investments and higher expenses down the line. This is especially true when it comes to your initial real estate purchase, where a lack of understanding about market, location, or demand could all see you investing in a non-starter.
As you embark on real estate success, a lack of understanding about potential areas for saving, such as your deductible expenses and the savings potential of services like a cost segregation study, could also see you spending more than you need, and ultimately ruin your venture as a result.
So, our last tip is to simply find out everything you can about market fluctuations, tax deductions, and risk factors, long before you invest. That way, you can make informed, sensible real estate purchases from your first property to your last.
