Over and over, we see people making the same mistakes when investing in real estate. To be honest, It’s frustrating! With just a bit more knowledge, or with the help of an experienced team, they could avoid the hassles and financial problems that happen as a result of the mistakes they made.
We want your story to be different, so we’ve put together this list of some of the most common real estate investing mistakes. If you avoid them, you stand a good chance of becoming a successful real estate investor.
- Getting Started Too Soon... Or Too Late
- Buying the Wrong Property – Part 1
- Buying the Wrong Property – Part 2
- Not Researching the Market for Your Desired Tenant
- Taking on Too Much Without Experience
- Overestimating Rental Rates
- Ignoring the Relationship
Getting Started Too Soon... Or Too Late
Buying on the Wrong Side of a Market Cycle
Articles and TV shows often make investing in real estate seem ridiculously easy and profitable. Naturally, people want to get in on the action! This means people are jumping into the market before they know what they’re doing.
Without any research or background knowledge, they get in over their heads, and they experience hardships, such as vacancy, tenant issues, unseen repair bills, and more, which all contribute to struggling financially.
On the other hand, others are nervous about getting started. They don’t want to make a move until they feel confident they fully understand all of the ins and outs. Gaining knowledge is admirable, but there are some things you can only learn by doing. If you wait too long to get into the real estate market, you may miss out on good opportunities and buy on the wrong side of a market cycle.
This means you could end up purchasing a property during a seller’s market or a property that isn’t desirable for tenants - which is not advantageous for you or your portfolio.
Buying the Wrong Property – Part 1
We see this one quite often… Buying the wrong property can be a critical mistake and one that could cost you thousands to try and reverse it. Before buying any property, take the time to understand what tenant profile it might attract. Does the property do a good job of mitigating or eliminating possible tenant issues like:
- separate laundry facilities
- separate entrances
- heating controls
- separate air exchange
A property that does not avoid these common tenant issues will result in more tenant turnover. Every time a tenant leaves it costs you money for cleaning, repairs, marketing, screening and showings and worst of all? The cost of sitting on a vacant property. These costs can chew through your cash flow and any reserve fund quite quickly.
Buying the Wrong Property – Part 2
Unfortunately, we see this quite often and this one can be a real deal killer…
When buying an inexpensive or older home, it’s super important to recognize if there are any repairs or maintenance that the property needs upfront or will need over your desired term of ownership.
For example, say you want to buy and maintain your investment property over 10 - 15 year period. Buying a home with 20-year-old furnace means there is a good chance you will have to replace the furnace during your term of ownership. The same goes for the roof, windows, hot water tanks, cement walkways, flooring, kitchen cabinets and appliances, just to name a few…
We don’t see a lot of sense here; making monthly cash flow if you’ll eventually have to give it away towards repair costs.
Every time you need to repair or replace anything it costs you money. These costs will most likely be cash purchases and if you don’t have enough cash flow or reserve fund on hand to cover them it will require a further capital input from you as the owner. Every time you put money towards your investment it reduces your overall ROI.
We’re finding that a lot of people - especially those new to real estate investing - do better by purchasing brand-new properties. The modern style and amenities in these homes allows you easily attract great tenants and you don’t have to worry about repair costs the same way you would in an older home since all new build homes in Alberta come with a warranty.
Not Researching the Market for Your Desired Tenant
Before you purchase a property, you want to be certain you’ll be able to attract a tenant. Are the communities you’re considering the types of communities that will attract your desired tenant profile? Are they close to popular amenities like recreation facilities, retail shopping, schools, and public transportation?
Once you have zeroed in on the community that supports what your desired tenant profile is looking for, it’s time to start exploring the property types your tenants will most likely rent in that particular area. Choose a home that will appeal and be affordable to this type of person. That might mean buying a duplex, a house with a suited basement, or a single-family home.
Taking on Too Much Without Experience
Being a landlord means taking on a lot of responsibility.
You need to be able to clean and prepare your properties. You’ll have to advertise, show the home to those who are interested, and screen potential tenants. You need to take care of repairs and maintenance concerns in a timely manner.
It’s a lot of different things, and you need different skill sets for each of those tasks.
Few people are good at everything, but a lot of new real estate investors try to do all of these jobs on their own, thinking it will save them money. And yes, while this means they aren’t eating into their profits by paying other people, it also means they might not be doing the best job. If you don’t have a lot of experience, you're better off working with a qualified team of people who know what they’re doing.
Many investors choose to go with a property manager instead, who can take care of all of this.
Overestimating Rental Rates
Not Analyzing Properties Correctly
It's a common train of thought: I’m going to buy a property and it will produce positive monthly cash flow.
It doesn’t always work out that way.
You need to look carefully at the average rental rates for your area and for the type of property you’re purchasing. Yes, certain types of properties are more likely to fetch higher rental rates, but those rates aren’t based on your mortgage. The rates are based on the rental market. Be sure you have a good sense of how much you’ll be able to charge for your unit to determine whether it’s going to be a profitable venture for you.
Ignoring the Relationship
Not Being Proactive With Your Properties
Once you get a person into your unit, you’re golden, right? That’s sort of true, but it’s a good relationship with your tenant that’s going to keep them in your place year after year. And since getting new tenants costs time and money, you want your tenants to stay as long as possible.
Do whatever it takes to keep your people happy, within reason! Usually, this simply means replying to concerns in a timely manner, along with giving people the privacy they want in a home.
Keeping the property well-maintained will set a great example for the tenant. Not responding to tenant concerns or repair requests will eventually lead to your tenant not caring either and this isn’t good. You could have a water leak and they don’t say anything resulting in more damage and cost than if they had notified you right away, so it would be dealt with in a timely manner.
It a great idea to be pro-active with your properties. Doing a walkthrough twice a year is a great way to stay on top of things, noting any required repairs and making sure your tenants are enjoying their stay. Your tenants will appreciate your efforts and having a property that is in great shape. The walkthrough is also your time to ensure the tenants are living within the guidelines of the tenancy agreement.
Remember, overbearing landlords can drive people out just as much as ones who aren’t involved enough. This is a 2-way street and a great relationship with your tenants will pay huge dividends over the long term.
We want you to become a successful real estate investor, and we know the right team makes a big difference. Come talk to our experts today to learn more about how you can get started in real estate investing.