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Real estate investing can be an incredibly rewarding concept. However, when mistakes are made, it can also prove to be incredibly costly. One of the best ways to avoid these mistakes is to learn from the mistakes made by the real estate investors before you.
Even the most successful real estate investors have made mistakes. Just take a look at Ofir Eyal Bar. Today, he is a highly successful investor with several properties spread across several countries. However, even he has made some mistakes.
Here are some of the largest mistakes that Mr. Bar urges new comer real estate investors to avoid:
Pitfall #1: Getting Excited And Paying Too Much
When you go to make your first real estate investment, chances are that you’ll be excited as you go and look at properties. However, as human beings, we are very emotional creatures, and our emotions tend to drive us.
With that said, the excitement that you feel as you look at your first potential real estate investments can get you in trouble. Ultimately, it’s this excitement that can lead to you being willing to pay too much money for a piece of property.
Instead of making investment decisions based on the excitement that you feel, take a moment to step back and think about the decisions that you’re making. It’s a good rule of thumb to avoid making any same day offers. Take time to look at the property, then take at least 24 hours to think about a potential investment. This cooling off period will give you time to look past the excitement and properly assess the opportunity.
Pitfall #2: Forgetting To Get A Perc Test
Raw land investments are some of the most common entry real estate investments. The reason is simple. Raw land is generally relatively inexpensive, and tends to grow in value, just like any other real estate investment.
However, when making a raw land purchase, here is one factor that all investors must consider. That factor is the perc test. This test tells your local municipality how quickly water drains into the soil, giving an idea of whether or not it is safe to install a septic tank.
This is important because without a septic tank, no building can be put onto the land with running water. This means no apartments, no homes, no retail stores, nothing of value. Unfortunately, a failed perc test can knock large percentages off of the property’s value.
While getting a perc test will cost anywhere from several hundred to several thousand dollars, it can also save far more than that in losses. So, before you buy raw land, make sure to have a perc test done.
Pitfall #3: Underestimating Necessary Repairs
One of the best ways to make money in the real estate investing space is to buy properties that need a little bit of love. These properties are generally in disrepair and will require a sizeable investment to bring them back up to par. But, in most cases, the investment required will pay itself back in multiples.
Nonetheless, some repairs can be rather costly, and underestimating this financial burden can be a big mistake. For example, let’s say that you plan for a roof repair to cost around $10,000, but later you find that the city requires a specific type of shingle, leading to a cost more in the range of $20,000. That $10,000 difference can greatly change the economics of the deal.
With that said, when purchasing a piece of real estate that needs a little love, make sure that you are absolutely sure of the cost of repairs. If you are not well-versed in the type of work that needs to be done, it’s a good idea to call a few contractors in for a quote, even if you have to pay for their time to do so. This will ensure that you are prepared for the investment that your new property will require before it starts generating returns.
The takeaway here is a very simple one. When making an investment in real estate, it’s important to take your time and make the right decision. First and foremost, always give yourself enough time to see past the excitement before putting your money at risk. Moreover, make sure that you are assess the entire investment, including purchase price, cost of potential repairs, and other potential costs before getting involved in a real estate investment. By avoiding these common pitfalls, you will increase your chances of finding success in the world of real estate.