It can be one of the most lucrative industries around, but at the same time real estate can prove to be a leaking bucket if you don’t manage it accordingly.
There are umpteen pitfalls that a lot of new investors make, according to Stephen Buzzi. Fortunately, many of these can be avoided, provided you take the right steps.
As you may have gathered, today’s post is all about how you can avoid these mistakes. We’ll now take a look at some of the most common ones to ensure you don’t fall into any of the traps.
You don’t know your market
This is arguably the most common mistake and in the era of today, it’s also the most unforgiveable. As we all know, the internet really has opened up data – and it means that you can quickly find information about your local market. You can find out how much other houses in the neighbourhood cost, as well as things that might indirectly affect your investment such as crime rate and school information.
Suffice to say, if you aren’t armed with this knowledge, you are at a gross disadvantage. It becomes very hard to calculate if an investment is either good or bad and you are more likely to make bad decisions.
Choosing the wrong legal entity
This is one of the more surprising mistakes that real estate investors make, and it’s more common amongst those who decide to operate in multiple states. The nature of the country means that different regulations exist everywhere; and this can stem all the way down to the legal entity you choose for your holding company.
While an LLC might be completely perfect in some areas, in others it might cause all sorts of tax implications. This is a really basic area that you can get right from the start, and ensure that you don’t run up any unnecessary costs.
Not understanding repairs fully
Being a real estate investor doesn’t mean that you have to be an expert in DIY. However, you at least need to have sound knowledge of repairs, and a rough idea on what something is going to cost if it goes wrong. This will protect you against contractors, who might try and take advantage, or it might also protect you against yourself. In other words, if there is a defect with a property, you can quickly identify the problem with it and how much it is going to cost. If you don’t get your numbers right in this regard, the repercussions for your bottom line can be significant.
Choosing the wrong contractors
This final point relates to the previous one we spoke about. It’s not just your own cost estimations that can make you fall foul here, but also the decisions from the contractors you choose. Opt for a bad one, and they can cause chaos with your building. At the same time, if you don’t have a solid contract in place, don’t be surprised if they try and manipulate the terms into their favour.
