3 Tips for Rookie Real Estate Investors
Is 2015 going to be the year you start investing in real estate? We hope so. It’s a great time to enter the market. But, that doesn’t mean you are impervious to making a few rookie mistakes. We’d like nothing more than to see you succeed, so let’s take a look at how you can start off on the right foot:
- Don’t bank on increasing property values. That may seem counter-intuitive—after all, you are investing in property so that you can make money. It’s not easy to predict when or how property values will increase or decrease. Yes, it’s wise to invest in properties when the market is on the rise—but it won’t rise forever. If you are borrowing money to purchase an investment property, you need to be aware that depreciation of a property can compound your losses. How do you handle this reality? Talk with your real estate investment mentors. Find out how they make deliberate decisions about when to invest.
- Overestimate Costs. It’s true; most new real estate investors underestimate the costs of an investment property. You can figure out the mortgage and taxes pretty easily, but when it comes to maintenance and repairs, things can get a little tricky. What do you do? First of all, be thorough about listing all possible expenses:
- Did you remember lawn care?
- What about potential pest mitigation?
- Do you have any large expenses on the horizon like roof replacement or foundation repair?
- What about any potential city-imposed costs like new sidewalks or sewage and water tie-ins?
Secondly, add a percentage onto your total estimate. The key is trying to minimize the likelihood of surprises when it comes to care for your investment properties. Of course, it’s also important to remember that vetting tenants deliberately and diligently once you do purchase a property will also help you to minimize unexpected costs.
- Diversify. Sure, this sounds really daunting to new real estate investors, but if you can’t diversify your property investments in a relatively swift manner, you will find yourself with all your eggs in one basket. This could mean disaster if something goes south with your one investment. It is wise to have more than one investment property (and for the properties to vary in character) because your chances of recovery in the case of a failed investment will be greater.
These are just a few tips for new real estate investors. Remember that your greatest wisdom will come from the experience of your mentors as well as your own efforts.