Real estate investments can be fantastic sources of passive income. From rental properties to flipped homes, the right investments stand to generate considerable profits within very brief time-frames.
However, this isn’t to say that every investment opportunity is guaranteed to make you money, and given how expensive real estate can be, it pays to be discerning and do your homework when considering potential investments.
In the interest of protecting your capital and making sound investments, you’ll want to steer clear of the following mistakes.
Not Considering Crowdfunding Options
Investing in real estate isn’t an inexpensive endeavor, particularly when doing so solo. The more you spend on an investment, the more you stand to lose, meaning that solo investors face a fairly high level of risk. That being the case, it’s often a good idea for first-time investors to consider real estate crowdfunding.
As the name suggests, this practice entails investing in real estate with multiple other parties. With real estate crowdfunding, a party who’s highly adept at finding desirable, low-risk properties presents a group of investors with a variety of investment options.
Once the group has decided on a suitable property – or suitable properties – they’ll pool their capital to make the purchase, and after the property has been sold for a healthy sum, they’ll share in the profits equally.
Of course, this isn’t to say that going this route is ideal for all investors, and before making a decision, you’d do well to consider the various real estate crowdfunding pros and cons. For example, while crowdfunding typically carries less risk than solo investments, you also stand to make less of a profit in the event of a successful investment.
Failing To Research Housing Demand
When investing in homes or rental properties, it behooves you to research local housing demand. Unsurprisingly, properties found in populous areas with high demand for housing tend to generate larger returns than those found in low-demand areas.
So, even if a property seems like a fantastic investment, it may not generate the desired profit if it’s located in an area with slow population growth or very little housing demand. This is why it’s important to study up on any locales in which you’re interested in making real estate investments.
Familiarizing yourself with an area’s housing demand, growth potential, crime rates and local economy will help you determine whether it’s a locale worth investing in. Furthermore, brushing up on local home prices and property values will help ensure that you don’t wind up overpaying for certain investments.
Not Subjecting Properties To Pre-Purchase Inspections
Whether you’re investing in homes, rental properties or business spaces, it’s imperative that all potential investments be subjected to pre-purchase inspections. Forgoing a professional inspection may seem like an effective way to move a deal along, but doing so stands to cost you a lot of money in the long run.
Even if you’ve done a detailed walkthrough of a property, there are a number of potential problems that are unlikely to be on your radar. Conversely, certified inspectors are trained to identify a wide variety of property issues, many of which the rest of us would never think to look for.
With this in mind, make professional inspections a prerequisite for all real estate investments. From an investor’s standpoint, you have nothing to lose from requiring inspections. If anything, the results of these inspections actually stand to strengthen your bargaining position.
For obvious reasons, some sellers will attempt to dissuade you from having inspections carried out. In some instances, this is an indication that they are actively trying to conceal issues with the property.
Other times, they’re afraid that an inspection will uncover problems of which they’ve been hitherto unaware. Whatever their reasons are, you should walk away from any deal that involves forgoing professional inspections.
For many investors, real estate can be a lucrative venture. However, as is the case with any other type of investment, success is never a given. While certain real estate investments are far more likely to pay off than others, assuming that a healthy profit is guaranteed will never serve you well.
In the interest of minimizing risks and maximizing profitability, fledgling real estate investors should make an effort to avoid the missteps discussed above.
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