The investor’s chief problem—and even his worst enemy—is likely to be himself.
– Benjamin Graham
As a first-time real estate investor, your very first reaction to this statement is probably denial. “Not me”, “I won’t make those mistakes”, “I am not one to be fooled” are thoughts running through your mind right now. This is a cognitive bias you are experiencing. Here your mind is simplifying information and even relating it to past experiences.
Truth be told, there is no precedent to real estate investing even if you have invested in stocks, gold, or cryptocurrency before. Investing in Real Estate is akin to exploring a new territory altogether. It’s not as volatile as stocks, gives a higher yield than gold and the interest on your savings account. This is probably why 93% of Americans believe a home is a better investment than stocks1. It definitely lies within a ‘safer investment zone’ but also one where mistakes can cost you and cost you big.
Real Estate Investors & Beginner’s Luck
First-time real estate investors don’t go in thinking of the mistakes they will make when investing. They go in thinking of the yield they will gain and consequent profits. We all subconsciously hope for our beginner’s luck to favor us. Real Estate Investing is not luck, it’s math.
There is a scientific process associated with investing that involves knowing, among other factors, your neighborhood, the growth rate of the region, rental yields, HOA rules, and more. It’s a methodical process. So relying on luck or incomplete information is a red flag.
The Mistakes You Can Avoid As A First Time Real Estate Investor
“Does understanding the process mean I won’t make any mistakes?” No. Mistakes are part of the process of investing, especially for first-time real estate investors – it’s inevitable. Understanding the process helps reduce the scale of loss associated with these mistakes.
Here’s a look at some common mistakes that first-time real estate investors are prone to making.
1. Investing Because ‘Everyone Said So’
In a survey of 2,020 millennials, it was found that 38% search for investment advice for free online2. This is a good first step but cannot help you make the final decision. Investing should be a personal decision based on multiple aspects.
One you take after considering your finances, investment goals, and future plans. This also means that you need to do the research yourself by looking at property investment apps or reading credible material.
2. Investing Because ‘It’s In The Same Region’
Let’s begin with stating that there is nothing wrong with investing in property in your own region. Oftentimes investing in property in your region is easier, faster, and a fairly more transparent process. You have deeper clarity on the growth rate, economic situation, and rental yield of all neighborhoods in your region. Yet if your region doesn’t offer high rental yields, has a higher migration rate or high median rates, then it’s good to widen your horizons.
The mistake first-time real estate investors make is to ‘settle for less’ since the property is in their own region. Remote buying is an option that’s not considered. Technology has made virtual home tours possible. Almost 77% of Americans already do virtual tours before a real property visit3. Remote buying is also here to stay since it’s predicted that remote work is expected to increase by 87% since the pre-pandemic levels4.
You can now interact with agents and even close deals in a different region. Applications like Litpoodle are designed to simplify remote buying. The application helps you identify the best remote areas and growth rates complete with forecasts. The insights give you information that only local buyers would be privy to.
3. Investing Because it’s Cheap
Paying less can sometimes mean more trouble. As a first-time real estate investor you may want to make an immediate offer on a property that is cheap because it aligns perfectly with your budget. It may seem like a deal made in investment heaven but it’s important to approach it with caution.
Make sure to research about the factors that affect quality of life (safety for example) in the area, explore if the property is under litigation, and keep a lookout for any environmental issues that may lead to a decrease in rates. While you may buy it for cheap, do consider how hard it will be to rent it or sell it.
So to avoid this common investment mistake ensure you do your research. Ask questions to the agent, do a thorough inspection of the property and its surroundings.
4. Investing Because It Looks Perfect In Pictures and I Don’t Need to See It.
The perfect place can wait. Yes, you made an offer and so did 100 other real estate investors. Yet it’s wise to inspect the property in person. Whether you are buying locally or remotely, don’t invest in a property without seeing it. You don’t want to know that your house needs expensive repairs and maintenance after paying for it.
Don’t completely rely on attractive videos or images, or the words of the sellers. Go to the neighborhood to get a sense of the place. Walk around the home and inspect everything. This gives you deeper insights into the repair costs you can expect.
5. Investing Because It Offers High Rental Yields
Are we against high rental yields? Of course not. That’s the reason real estate investors are in this in the first place. Yet high rental yields can mean nothing if the economic growth of the region as a whole is on the decline. This will push people to other regions, reducing the volume of renters and leading to higher vacancy. So although the theoretical rental yield might be high, your returns might be low when considered the effect of higher vacancy.
Research plays an important part here too. Learn about the region and neighborhood, keep an eye out for local news to understand if jobs are being created or if new industries are being set up. This will tell you whether the place will see a huge influx of people who can be potential renters.
6. Investing without considering the HOA rules
The HOA (Home Owners Association) is an integral part of the housing community. There are many neighborhoods that opt for HOA. When you are buying a property that is in a HOA neighborhood, go through the HOA rules and regulations with a fine-tooth comb. The HOA maintenance charges are usually a huge deterrent for renters. Add to that arbitrary rules and regulations, and renters will flee. As a first-time real estate investor, you don’t want to deal with whimsical rules.
So don’t make this mistake by ensuring you are aware of every rule written down by the HOA.
7. Buying Because I Trust The Agent
You need to trust your agent – we are not contesting that. It’s equally important though to trust your agent’s credibility, experience, and expertise. So make sure you work with a licensed agent who is reputable. Not working with a good agent can lead to concerns at a later stage in the investing process. A good agent on the other hand will lookout for any potential issues and flag them early, thus helping the investor avoid many a hassle.
On LitPoodle every agent is vetted so that investors can have peace of mind. Its features are designed to help real estate investors like you avoid common investing mistakes by empowering you with the information you need – providing you with the insights on best regions to invest in, neighborhoods with high rental yields, and forecasts on your property value. This makes LitPoodle the perfect real estate investment app for first-time investors.