Real estate is often hailed as a good investment, especially in a hot market that allows investors to buy low and sell high. So if the investments are so promising, why do real estate investors fail? Whether you’re flipping homes and taking advantage of the house shortage and thirsty buyers or you’re gaining rental income by securing tenants in different properties, there are three pitfalls to guard against that cause some real estate investors to go broke.
Risk vs. Reward
Risk is an inherent part of investment, but doing your homework before jumping into a deal will help eliminate some of the threat. As an investor, you must find the breaking point of risking too much in search of the big reward.
Some of the biggest risks in real estate investing include:
- Buying too many properties too fast
- Overleveraging properties by assuming too many “deals” that don’t work out
- Refinancing of properties to use equity to invest in more deals
Unexpected issues with a property, delayed timelines for renovations, or hiring the wrong people can all lead to financial issues, even bankruptcy for real estate investors who aren’t mindful of the risks.
Working with knowledgeable partners, researching situations before jumping in, and cutting off problems before they intensify will help you lower your risk and take on the waiting reward.
Uneducated
A hot real estate market tends to convince people that investing in real estate is a shoe in, so they start buying up properties to be in the game. However, buying the wrong properties, in the wrong neighborhoods is ineffective. You’ll not only lose money but you’ll be stuck with properties neither you nor anyone else want.
The solution is to become educated. Real estate investors should soak in articles, books, and podcasts on buyer trends, financing options, and investment scams to avoid. Education doesn’t come in an infomercial at 3 a.m., so dedicate the time to learn the market and you’ll reap the benefits.
Know The Numbers
The last pitfall may seem like an essential task to real estate investing but so many investors bypass the analysis of the numbers or begin estimating, which can end poorly (and leave you in the red). If you’re going to invest in real estate, you have to crunch the numbers. While it’s impossible to predict the future, and as we’ve learned, no investment is without risk, you’ll make better financial decisions when you analyze recent and current trends in the real estate market and use those numbers to help project the future.
When you have an educated idea of what the future of real estate looks like, you know how much to pay for properties, what to charge tenants, and what your renovation budget should look like. Be precise. Do not estimate your budget or expenses. Bad math greatly increases your risk of loss. You’ll avoid the three main pitfalls of real estate investment when you:
- Evaluate the risk and make deliberate decisions to gain the reward
- Educate yourself through trusted partners and resources
- Study the numbers and do the math precisely before jumping into a deal
Real estate investment is hard work that pays off big for those who are willing to study the market and work with partners who are committed to eliminating risks through detailed work.
Risk is an inherent part of investment, but doing your homework before jumping into a deal will help eliminate some of the threat. As an investor, you must find the breaking point of risking too much in search of the big reward.
Some of the biggest risks in real estate investing include:
- Buying too many properties too fast
- Overleveraging properties by assuming too many “deals” that don’t work out
- Refinancing of properties to use equity to invest in more deals
Unexpected issues with a property, delayed timelines for renovations, or hiring the wrong people can all lead to financial issues, even bankruptcy for real estate investors who aren’t mindful of the risks.
Working with knowledgeable partners, researching situations before jumping in, and cutting off problems before they intensify will help you lower your risk and take on the waiting reward.A hot real estate market tends to convince people that investing in real estate is a shoe in, so they start buying up properties to be in the game. However, buying the wrong properties, in the wrong neighborhoods is ineffective. You’ll not only lose money but you’ll be stuck with properties neither you nor anyone else want.
The solution is to become educated. Real estate investors should soak in articles, books, and podcasts on buyer trends, financing options, and investment scams to avoid. Education doesn’t come in an infomercial at 3 a.m., so dedicate the time to learn the market and you’ll reap the benefits.The last pitfall may seem like an essential task to real estate investing but so many investors bypass the analysis of the numbers or begin estimating, which can end poorly (and leave you in the red). If you’re going to invest in real estate, you have to crunch the numbers. While it’s impossible to predict the future, and as we’ve learned, no investment is without risk, you’ll make better financial decisions when you analyze recent and current trends in the real estate market and use those numbers to help project the future.
When you have an educated idea of what the future of real estate looks like, you know how much to pay for properties, what to charge tenants, and what your renovation budget should look like. Be precise. Do not estimate your budget or expenses. Bad math greatly increases your risk of loss. You’ll avoid the three main pitfalls of real estate investment when you:
- Evaluate the risk and make deliberate decisions to gain the reward
- Educate yourself through trusted partners and resources
- Study the numbers and do the math precisely before jumping into a deal
Real estate investment is hard work that pays off big for those who are willing to study the market and work with partners who are committed to eliminating risks through detailed work.
