Since all rental property owners seek to generate healthy returns through their investments, it’s only natural that first-time investors would look for properties that are likely to prove highly profitable. Unfortunately, not all investors are willing to put in the work needed to ensure that they wind up with the right properties. Given how financially ruinous a single ill-conceived property investment can be, it’s in every investor’s best interest to do their homework before committing to buy and avoid the following missteps.
A Lack of Market Knowledge
It should come as no surprise that a general lack of knowledge about the real estate market is likely to lead to some poor investments. However, in spite of this simple fact, a staggering number of first-time investors proceed to spend enormous sums of money without taking the time to properly educate themselves. So, if anyone in your usual circle of friends, family members and general acquaintances possesses relevant real estate experience, you’d do well to reach out to them before moving forward with any large investments.
Of course, not all of us are acquainted with seasoned real estate investors. People who are bereft of real estate experience and hungry for guidance should get in touch with a dedicated real estate investment company. Experienced professionals will be able to address any inquiries you have on such subjects as effective investment strategies, the tenets of a desirable property and whole fund vs deal by deal investing.
A Lack of Location Research
The location of a rental property plays a vitally important role in determining how profitable it’s likely to be. So, if you purchase a rental without first researching the area in which it’s based, you may be in for an unpleasant surprise. Even a property that’s been meticulously maintained and boasts a plethora of modern amenities may prove to be an unprofitable investment if it’s located in an area that’s lacking in demand for housing.
To reduce your chances of pouring your resources into the wrong property, take care to thoroughly research the location of any rental that piques your interest. You can form a clear understanding of how much demand exists within an area by taking an in-depth look at home prices, rental rates, population size, growth projections, job market, median income, school quality and crime statistics. While you may regard location research as cumbersome, it can prevent you from making high-cost mistakes and increase your odds of investing in the right type of rental.
A Lack of Property Knowledge
You should know as much about a property as possible before putting forth a serious offer. Considering how much money you stand to lose if an investment property turns out to be a lemon, it’s only natural that you’d want to be aware of any outstanding issues it has. That being the case, you should never agree to forego a formal inspection from a certified professional.
Some fledgling investors are so eager to move forward with deals that they deem formal inspections unnecessary. In many cases, these individuals regard doing personal walkthroughs as a suitable alternative to actual inspections – which they very much are not. For one thing, certified inspectors are trained to seek out and identify an extensive variety of issues that are unlikely to appear on the radars of nonprofessionals. So, if you want an accurate accounting of all of a property’s outstanding issues, there’s simply no substitute for a professional inspection.
After receiving the results of the inspection, you’ll be able to carefully consider any issues the inspector has identified, obtain contractor estimates and rework any offers you were going to make accordingly. Furthermore, the more a seller pushes back against the idea of an inspection, the more you should advocate for one.
Whereas a good investment property can function as a long-term vehicle for passive income generation, a bad one can prove financially draining. So, if you truly care about where your financial resources are going, it’s in your best interest to be discerning when searching for suitable investment properties. There are a variety of reasons for which people put money into the wrong investment properties, and as luck would have it, many of them are easily avoidable. Fledgling real estate investors on the hunt for profitable properties would be wise to stay mindful of the blunders discussed above.