Avoiding all money-losing pitfalls in real estate might be impossible. However, minimizing them is achievable, and investors have the responsibility to do this. Below are the top three money-losing mistakes in real estate.
Money-Losing Mistake: Miscalculating the Cost of Real Estate Repairs
Both long term owners and flippers can miscalculate the cost of repairs. A good percentage of investment properties usually need minor or major renovations. These renovations can be as simple as painting for the aesthetics, or they can be as complex as partial reconstruction. An investor might fail to carry out a full survey of the property before valuing the property and sealing the deal.
This fix here is to always have a way out. Include a stipulation in the contract that allows you to pull out of the deal, if there is any damage beyond measure; this means that you have a right to complete refunds. Learn the true nature and history of the house from its old tenants or workers. Have your trusted contractors examine the building details. With these precautions, it is quite unlikely that you will waste any coin on repairs. Try Property Fixer; it is a mobile app recommended for real estate investors.
Long-term investors might miscalculate rent payments. Of course, you do not want to overcharge your tenants, as you do not want to keep an empty house. So, lowering the rent payments might seem like a good option. However, you should not betray the simple laws of finance; remember that every investment should have a profitable return.
The fix for this is to take some time out to explore how the neighborhood runs. Read local newspapers for listings; additionally, look up Craigslist and see what others charge. Then, you should easily come to a good rent number, as you will become aware of the current worth of your property and its cash flow.
Money-Losing Mistake: Miscalculating After Repair Value
House flippers might miscalculate the after repair value. When soft costs such as lender fees, insurances, and taxes can bloat out your ARV, resist the temptation to make this error. Miscalculating ARV is a big money-losing pitfall that you should avoid. You cannot always forecast a huge sale, especially in an economy that is as dynamic as this one. So, play it safe.
The fix for this is to be very conservative with your ARV. Use comparative property sales analysis to estimate what your property is worth, both instantly and after it is repaired.
Always keep an ear out for trends on the real estate industry. As information is key, a bit of it can exponentially boost up your profits.