5 Deadly Mistakes for First Time Rental Property Investors
Call it the five deadly sins. You’ve heard about the successful investors or property tycoons and you dream of becoming one of them. While there is a lot of success to be had in the sector, it isn’t without its fair share of disappointments.
Real estate is responsible for the wealth of many of the wealthiest people in the world. But even their first forays into real estate weren’t always financially successful.
Investors looking to make a quick buck are disappointed more often than not, as they soon realize their plans were premature. For you to not become one of them, this piece was prepared to help prevent you from making the same mistakes, particularly the worst one of all.
1. Buying The First Thing You See
This can also be classed as emotional purchases. As an investor, you have to go with the facts and the figures when purchasing an investment, not intuition. You may have heard a tale or two about a guy who knew a building was a ‘sure thing,’ then bought it, flipped it and retired on an island.
It is possible, but lightning rarely strikes twice!
First-time investors can also get duped by developers or homeowners with talented tongues. So after one house visit that impressed, they are ready to make a purchase.
In many cases, you could hire a developer for a piece of land, and it turned out the developer was a huge disappointment and that was money down the drain. Empty promises make empty homes and empty homes make empty bank accounts. So it is vital always to do your research, and consult with professionals in the real estate market.
2. Lack of Thorough Research
What’s the property for? Do you want to rent it always or will you plan to sell it pretty soon? If you’re going to sell it, would you like to rehab it, or just try to buy low and sell high? How long would you like to keep it before you sell it? If you are going to rent it, have you already lined up a local property manager to handle all that for you? Starting your own rental management business is no small task, as outlined here by Goodjuju. Probably better for you to let an existing company handle the management since they have already been doing it for years.
These are some personal thoughts to consider and you have to weigh in the market conditions. If you list a house today, how many months would it take on average to find a renter and at what price?
Can the deliver the property at the said time, and if that fails, do you have a contingency plan?
When it comes to research, there are so many things to consider, from the market as a whole to tax incentives, type of home, planned developments in the area, the location and financing.
You also need to inspect the house. For these and other considerations, you need the services of a professional.
3. Getting the Wrong Financing
The global recession taught us a valuable lesson in mortgage financing – never bite more than you can chew. It is tempting to take a huge loan because you like big risks, but that is how many businesses have failed.
Thanks to new banking regulations, it is a lot tougher to get a loan you can’t repay. But you can get poor financing in terms of how you are to pay back and what. You can get slaughtered by rising inflation rates, for example.
First-time owners confident they will rent their property within a few months, bank on big. But big often go bust. To get it right, you need the help of a professional mortgage broker.
4. Doing it All Yourself
Since the advent of YouTube and Google, everyone has become a professional. After a few videos and some research, you might feel as though you are thoroughly equipped to take on a project like this on your own.
Of all the costs you need to save when purchasing your first property, hiring professionals should not be one of them. It would be best if you had an experienced property advisor, a licensed home inspector and a professional mortgage advisor.
Anything short of these can cause considerable chaos. Knowing how to choose a property advisor or real estate agent will help you get the info you need regarding market conditions and how to go about your search. The inspector will make sure your house is up to code and the mortgage advisor will get you the right financing, as mentioned above.
Finally, you should have a good lawyer in addition to some financial planning and preparation. When contracts and large sums of money are involved, professional counsel is always recommended. Even if you’ve worked in the real estate industry before, you’re buying a new property (no inspector required) and you’re funding it yourself, you still can’t do without a lawyer or without building a solid financial foundation that you can feel confident about.
5. Giving Up
This by far, is the deadliest sin of all.
It is not okay to give up because you got a raw deal the first time around. Most real estate investors will tell you of at least a few deals that went very, very bad. Money lost, reputation nearly ruined and hearts broken.
But to give up is the worst mistake you can make. You can always recover. Learn from your mistakes and others’ mistakes and give it a second go, after following the above principles.
First-time property investors are often last time property investors. But those who stick it out often have a different story to tell. What will yours be?