With a low barrier to entry and potential for quick profits, many first time investors assume that real estate investing is simpler than it actually is. Unfortunately, when an investment is executed poorly and with little research, it can become a nightmare. As a result, many inexperienced real estate investors run into several challenges along the way. These challenges ultimately keep investors from seeing returns on investment (ROI). The experts at RCN Capital discuss some of the most common issues for investors who are just starting out in real estate.
Inexperience Can Lead to Mistakes
Obviously, you have to start somewhere. However, if you don’t know what you’re doing, you could easily lose money on a real estate deal. Inexperienced investors can also be too trusting of the wrong sources. Many people assume that real estate is a sure thing and that it always appreciates. While real estate investing can be great way to make money, and it often does appreciate, you can still lose money investing if you don’t know how to properly evaluate a deal.
For instance, if you’re seeking to take the rental property route, and you can’t get the rent you need to hit your numbers, or if you can’t rent out the unit at all because the rental/neighborhood just isn’t attractive to renters, it’s likely you will lose money. In the case of fix and flip deals, if you pay more for the property plus renovation and repair costs than what you’ll earn in a sale, you will lose money.
Starting Off With Too Vast of a Scope
For many investment novices, television was their first exposure to the market. Many TV shows portray real estate investment as a fast, exciting, and often profitable venture. Of course, that can be true in some situations.
Keeping that in mind, beginners often go into their first properties with major plans. Perhaps they plan to knock down walls or add a room or perform other major renovations. These types of rehabilitation projects usually require additional expenses to cover plumbing or moving ductwork, which can be costly both in time and money. And then, early expectations of turning the first flip into a masterpiece are long-gone as the costs accumulate.
So, instead of starting with a major home renovation, consider starting small while learning the ins and outs of the business. Simple improvements like a fresh coat of paint or updated appliances are easy ways to modestly increase value. Proper preparation will help beginners focus on mastering the smaller parts of real estate investing.
Timing is a significant contributing factor to real estate investing success. When you’re observing the overall market, timing within the calendar year is important to consider. In years past, springtime has been one of the better times to sell a property. More people tend to shop for homes as the weather gets warmer. On the other hand, the fall months are the often best for buying a property (Source). Leveraging these trends when it comes to real estate investment can help new investors make the most out to their time and money.
It’s clear that not many people can or want to buy an investment property with only cash. It’s always beneficial to finance the deal, which can prove troublesome for the inexperienced. Typically, you’ll pay a higher interest rate and will need to put down a larger down payment for a mortgage loan with an investment property compared with buying a property as a primary residence. So be sure to keep that in mind.
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 should consider a private real estate loan. You could take the traditional route and apply for a conventional bank 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.
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.