Investing in real estate is glamorized all over television. After attending a “no money down” seminar or watching one of the many beautiful reveals on HGTV’s Property Brothers, you might be tempted to rush into the market.
But before you spend a dime, learn to identify and avoid real estate investing mistakes.
These five are among the worst:
Not understanding your creative-finance or adjustable-rate loan. If you don’t know the limits of your loan payments, it could cost you thousands of dollars.
Interest rates are still at some of their lowest levels in decades. If a seller offers a “creative-finance” deal or the lender recommends an adjustable-rate mortgage, tread carefully. Depending on the terms of the loan, your payment might increase when interest rates rise, which is expected to happen throughout this year and beyond.
Ignoring the downside of your REIT investment. Many investors enjoy the juicy dividend payments associated with investing in real estate investment companies or trusts, commonly called REITs.
Yet like all investments, the price you pay for a real estate investment trust will fluctuate. Be aware that both the dividend payment and the value of your REIT investment can go up and down.
As with any investment, it’s important to understand what you are buying before you invest in a REIT fund.
Forgetting that investing in property is highly illiquid. Real estate investing isn’t the same as investing in the stock market.
You can buy or sell a stock or fund online in minutes, with the click of a mouse. No so with property.
Large transaction costs are typically involved in the real estate industry. Plus, buying and selling rental properties or buying houses involves many steps and a lot of time.
Thinking that flipping houses is a quick way to make money. Don’t believe what you see on HGTV: Flipping houses doesn’t happen in one hour.
If you’re hankering to flip residential real estate, read some real estate investing books first.
Buying a property at auction frequently requires an all-cash purchase, and you don’t even get to view the inside of the house. If you overpay, you won’t make a profit.
Underestimating costs. Whether you’re seeking to buy rental properties, industrial real estate, or even retail real estate, it’s easy for costs to get out of hand.
When a tenant suddenly moves out, for instance, you can face a month or more without rent you no doubt used to cover those costs.
So always overestimate, rather than underestimate. Real estate management is expensive and includes closing costs, fees, commissions, insurance, repairs, maintenance and carrying costs.