A Ten Part Series on Mistakes Real Estate Investors Make and How to Avoid Them Part 4 & 5 of 10.
Big Mistake Number Four: Banking on Speculation
In investment real estate a good rule of thumb to remember is ‘make your money when you buy, not when you sell'. A wise investor will value a property based on today's value, not tomorrows. If you have a look around today you will find the markets that were considered the fastest growing communities in the nation five years ago are now the hardest hit in most cases. Time will tell us the one thing we can't always predict is the future. The only information we have is that which we know to be true today. Life can be complicated and you don't always know how things are going to transform, whether its business related or personal. If you buy right from day one then you can ensure you will have a good exit strategy if you need to sell in five years or tomorrow. A good investor may buy with hopes of appreciation in mind, but at the same time will always protect the downside if things don't go as planned.
Big Mistake Number Five: Spending Money in the Wrong Places
It's all too common to find a real estate investor who has gone over budget on a real estate project. Equally as common is to find an investor who hasn't spent enough, but the most common of all is to find a real estate investor who spent money in all the wrong places. Before putting a rehab together it is vitally important to have an intimate understanding of the recent comparable sales and active listings in your immediate area. This information is what you will use to generate your strategy and should be referred to in determining your every repair and upgrade. If houses are selling in the area in less than sixty days with vinyl flooring and popcorn ceilings for premium prices then you can save yourself the cost of travertine tile. If half the houses in the neighborhood have garage conversions, and they haven't affected sale values, the knowledge alone will save you the thousands of dollars you would spend converting a desirable bedroom back into a garage. The most sensible thing you can do when planning a rehab is to ignore your personal taste and focus on the taste of the neighborhood. Find out what's selling, and what” not. This essential information is literally worth thousands of dollars! Additionally, as a rule of thumb you will generally receive your highest returns on money invested into kitchens and bathrooms (the master bathroom especially). Some items that provide lowest returns are fences, high quality windows and doors, landscaping, and decks. Keep in mind this is the rule but not the exception. The area information will provide the particular exceptions. And no matter what area you're in, it's always a good idea to invest money in keeping the property impeccably clean following the remodel. As strange as it sounds it is a proven fact that people will buy a property in disrepair before they will buy one that is unclean.