Most people say that if they had money to spare they would invest in real estate. However, it takes more than money to be successful at building a property investment portfolio. You will need to learn a lot about the real estate market before you could build an extra source of income from the ground up. If you are up for a challenge, and would like to avoid the most common real estate investment mistakes, you should check out the below list before you would get started.
Choosing the Wrong Area
If you would like to succeed in real estate, you will have to learn as much as you can about different areas and locations. Find out which demographics the area appeals to and what the expectations of your target market are. It might be worth to look at crime and population reports, and learn more about the competition. Without knowing what the realistic asking price for letting out your residential or commercial property is you will not be able to calculate the yield on your real estate portfolio. It is also important that you get tenants in as soon as possible, so you can maximize your profits, but for that you have to choose your area carefully.
If you have multiple properties, you might not want to do all the inspections yourself. Make sure you reduce the risk of emergencies by getting a contract with a local firm that will handle everything; from installations to carpet replacement and fixing leaking faucets. You don’t want to spend your weekends checking on your properties. The good news is that you will be able to secure a monthly deal and let the management company deal with the small stuff, while you enjoy your free time.
Targeting the Wrong Demographics
Another common mistake property owners make is choosing the wrong demographics when marketing their homes to let. You might want to appeal to older retired people, thinking that they can afford the rent more, but they simply don’t want to be in the city, and will look for properties in the suburb. Alternatively, you might target families, but your home will not be large enough, and appeal more to working professionals who want to be close to the center and transport links.
Not Taking Out Additional Insurance
While having a basic home insurance for your rental real estate gives you a basic level of cover, it doesn’t protect you from everything. You need to make sure that you also have liability insurance in case your tenants suffer an accident while in your real estate, and an additional cover to pay the rent if they cannot. Some realtors and agencies will offer to pay your rent while you are looking for new tenants, which will help you manage your cash flow.
Not Securing a Fixed Mortgage Rate
To manage your finances better, it is always a good idea to get a fixed buy-to-let mortgage rate instead of a variable one. You will not want to take more risks than necessary, and being able to calculate your outgoings for a few years ahead will help. Unless you are an economic expert, you cannot determine when the next interest rate rise will come, and reduce your profits on all your real estate. Reduce the risk of investing in real estate by securing fixed repayment deals.
Not Keeping on Top Of Maintenance
Prevention is always cheaper than dealing with emergencies. If you don’t have a contract with an electrician and HVAC maintenance company yet, you should get one to avoid breakdowns that are avoidable. Yearly or 6-monthly inspections can help you keep your property and your tenants safe and avoid accident and injury claims or paying compensation for your real estate becoming uninhabitable.
You will also have to take some time to inspect the homes you rent out regularly. You can get a friend or a company to do this for you, but if there are any issues you want to know about them as soon as possible. When you draw up your contract, make sure that you provide your inspection schedule and clarify how many days of notice you will give people before you turn up. If you simply come and go as you wish, you will not give out an air of trust, and your residents will look for another place that gives them more privacy.
Not Keeping In Touch with Neighbors
If you want to know what is going on in your rental real estate, you want to befriend the neighbors. You will be surprised how nosey people can be and how many things you can hear from others who live nearby. Instead of trusting your residents to tell you everything, and avoiding employing a private investigator, you can get neighbors know that they can contact you any time they have concerns. Whether it is inappropriate sound levels or unreasonable parking, you can solve the issues before they would escalate further.
Choosing the Wrong Property Management Company or Plan
If you sign up with a real estate agent to manage your portfolio and collect the rent, you might end up paying a large proportion of your profits to the company. Always consider the condition of the home and the potential cost of repair before you sign up for a property maintenance plan, or you might end up paying more than you get out of the service. If you have a brand new heating system in the home you rent out, or the commercial building, you might not benefit from a HVAC maintenance plan, and end up paying hundreds of dollars just to get inspection reports every month and get your money transferred to your account.
Low Occupancy Rate
If you don’t schedule your maintenance and renovation well, and have to wait for the contractors to finish the job, you will be losing money daily. It is important that as soon as your occupiers give you a notice that they wish to move out you create a plan and put your home back on the market to avoid losing your income. Even if you still have people in the home, you can advertise it and show it to other people, giving them an estimated date for moving in.
Lack Of Property Portfolio Diversity
If you want to add extra security, it is recommended that you invest in various markets and areas. Check out http://www.denverhomesmarket.com to look through the different types of properties for sale and the estimated return on investment. Make sure that you check the area and the transport links and carefully choose the type of people you want to rent your real estate.
Not Having an Emergency Fund
If you don’t have an emergency fund for when your tenants leave or fixing urgent problems in the real estate, you will easily get into debt. Make sure that you put a proportion of your rental income in the bank, and use it for urgent repairs and to cover periods when you are not receiving an income. This will help you deal with problems more efficiently, and you can get your property back on the market, without having to pay extortionate interest rates to get a fast loan.
Not Consulting with an Attorney
You will always need to consult with an attorney before you let your property out. This will help you understand the basic and additional clauses and get the legal protection that will secure your income and protect your reputation as a property investor. You need to be aware of the taxation regulations related to making money of your real estate portfolio, the expenses you might face if you need to evict people from your property, and much more. As an owner, you will have a lot of responsibilities to protect the residents of the property, and if you fail to comply with the legislation, you could be prosecuted.
Going Private Instead of Getting a Professional to Draw Up the Lease
While it might seem like a good idea to save money and go out on your own, you can lose money if your lease doesn’t cover every aspect of the real estate deal. While you can save money on agency costs when you let your property out privately, you can lose out big time. Unless you are an expert with a real estate background, you should always get a professional to write and check your legal documents.
Whether you are just starting your real estate empire or are thinking about expanding your portfolio, you need to make sure you don’t fall for the common misconceptions many property owners do that can make you lose money. Consult with a professional and make sure that you are minimizing the financial and legal risks. Choose your location and market carefully, and take out extra insurance to cover your rent in unexpected situations. This way, you can carry on growing your real estate empire and securing a long term residual income.