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Inexperienced real estate investors are prone to making mistakes, as it takes time and experience to become a seasoned expert. While it’s important to learn from your own mistakes, it’s often better to learn from the errors of others if at all possible. Learn from the mistakes made by other investors so you can identify what went wrong and ensure this doesn’t happen to you. With that in mind, let’s learn about some of the most common mistakes in real estate investing, as well as some tips to help avoid them.
Lack of Proper Planning
There’s few ideas worse than entering into a real estate investment deal without doing the proper research needed for a detailed plan. If you skip this critical step and act on impulse or intuition, you could end up stuck with a property that you don’t know what to do with. Sure, an experienced investor may appreciate the challenge, but this is not something you want as a beginner. We strongly recommend you carry out your due diligence prior to purchase.
For example, it’s important to explore the nuances of the local market— find out whether there are any planned construction projects that could affect the profitability of your investment in the long term. Inquire about the main problems in the area, and assess if these could have a negative impact on future property values.
Flying Solo
Unfortunately, many first-time investors enter into an investment deal on their own without consulting experts or peers on their decision. While your instincts can serve you well, it’s important to develop the experience necessary to hone those instincts! So, if you’re starting out as a real estate investor, it’s critical that you establish a network and seek out the advice of others. Consider joining a local real estate group or speak with an experienced private lender.
You Don’t Have an Exit Strategy
Despite the fact that an exit strategy sounds like something you would think about at the end of an investment, it should actually be one of the first things you consider. Ultimately, an exit strategy will shape how successful your investment is and offers you a range of options to best manage different scenarios you may find yourself in.
Exist strategies allow investors to be flexible and change course if they are short on cash while also minimizing losses in the unlikely event that something goes wrong.
When it comes to choosing exit strategies, no one method works for everyone. From wholesaling to fix and flipping, buying and holding, and selling for a 1031 tax-deferred exchange, there are several to choose from.
Financing: Applying for the Right Loan
When you’re financing your first real estate investment, it’s important to carefully consider the type of loan you apply for and how to qualify for it. There are several different loans you can apply for. For instance, if you’re seeking to access funds to hold you over until you can secure permanent financing, a bridge loan is your best bet; however, in order to secure one, you’ll need to have existing real estate to borrow against.
If you don’t have the amount of equity necessary to secure a real estate investment and need the funds quickly, you could apply for a private real estate loan.
Another option is to take the traditional route and apply for a conventional loan, which you’ll pay back over a long period of time. However, traditional loans often have more “hoops” to jump through and are not well-suited for the fast-paced world of real estate investment.
Final Thoughts
It’s best to go with your head over your heart, especially if you’re often impulsive. First time investors commonly make investing mistakes, especially when they don’t think everything through, right up to the last little details. As long as you have an exit strategy in mind and carry out careful planning while soliciting helpful advice and the right loan, real estate investing will be a profitable business to be involved in.
About RCN Capital
RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing as well as long-term rental financing for real estate investors, and that includes multifamily properties. RCN Capital also has flexible and competitive loan options available. If you are a real estate investor looking to secure financing for a multifamily property, RCN Capital is the lender that you are looking for. Connect with us today to discuss your next real estate investment.