Real estate is one of the oldest and most powerful ways to expand your wealth, but deciding where and how to start investing can be overwhelming. If you are a novice in this realm, here are some common commercial real estate investment mistakes to avoid to place your money wisely.
Not Knowing Your Market
Have you heard the old saying “all real estate is local”? This statement couldn’t be more spot-on for investors. It pays dividends to have native knowledge of a certain area. You need to know the land value, home values, inventory levels, absorption rate, and the average number of days for specific properties for sale in a market.
All of this data can help determine whether it will be beneficial to purchase a particular property.
Not Using Available Resources
A team of trustworthy experts should include a real estate agent, a home inspector, a handyman, an attorney, and an insurance representative. Collectively, they can help guide you to make the right purchase by identifying any flaws in the home or neighborhood.
An attorney can alert you of any defects in the title or of easements that could come back to haunt you down the line.
Taking On More Than You Can Handle
Few real estate investors realize that there are often hidden costs attached to buying a property. There can be unexpected accidents such as a pipe burst or water heater failure. The cost of installing a new roof and making structural changes to a house or building can add up quickly.
Be aware of what you can handle and make sure you have enough savings to act as a cushion for unpredictable expenses.
Letting Emotions or Perceived Profits Affect Decision Making
While you might be excited about your first investment property in real estate, balance your enthusiasm with an objective eye.
Never make big emotional financial decisions alone. Instead, before making a final decision, ask a trustworthy business partner, advisor, and/or other mentors. That way, you understand how to put your money to work for you.
Using Hard Money or Financing to Help Complete Projects
Leveraging debt to increase profits is a powerful tool. It can allow you to start your real estate investment career before being able to purchase property in cash, or can allow you to purchase multiple properties by spreading out your resources.
However, using hard money or other financial tools for your real estate investments comes with risk and might not be for everyone.
It is important to understand your project first. Make sure you know your timing and costs and talk with the resources you have, including a potential lender, before committing to any loan.
It is also important to talk with a lender to find the right loan product for your particular project.
Not sure where to get started? Not sure what type of loan would be right for you? We are more than happy to help. If you have questions, call us today.