About 33% of real estate investors in the United States are first-time buyers.
The property investment market is a very lucrative one. However, it’s also a competitive one. There are numerous property investing pitfalls that you should avoid if you’re new to the game and want to succeed in this industry.
As property investing becomes a more popular industry, it’s worth taking some time to go over the most common property investment mistakes that you can avoid. Here are 10 property investment pitfalls for beginners:
1. Having a Short-Term Investment Approach
First and foremost, property investing is a long-term business. It’s not something that you can set up and expect to be profitable within six months.
Unless you’re going for quick flips or investing in properties with great immediate returns, property investment is a slow process.
You need to be patient and build up your property portfolio slowly over time. If you’re short-term focused, it’s going to be hard for you to succeed in property investing.
Avoid focusing on quick returns or trying to treat property investment as an online business with instant revenue. Instead, focus on building assets that can help you get ahead of the competition while providing consistent income down the line.
Short-term property investment strategies are not only unsustainable, but they’re also risky. You’re likely to burn your fingers and lose a lot of money if you’re short-term focused.
You should always think long-term when property investing and focus on building assets that will help generate consistent revenue over the years to come.
2. Failure to See Rental Property Investment as a Business
Rental property is not just another property that you buy. It’s a business — it needs to be treated as such.
If you want to succeed in property investment, then this has to become how you approach real estate investing.
New investors (and even experienced ones) need to remember that renting a property is essentially like running your own small business out of your home or garage. This means taking care of all the responsibilities and tasks associated with property management on top of doing everything else within your life.
This isn’t always an easy thing for first-time property investors to understand. Property investment can seem like a lot of hard work, and it’s easy to forget that you’re essentially running your own business when investing in property.
Real estate investment is not something that you can dabble in. It’s a serious business that requires hard work and dedication from property investors who want to succeed.
It’s worth noting that property investment is not for everyone. This mainly goes to people looking to invest in property because it sounds like an easy way to make money without putting much effort into it.
If this sounds like you, property investing is not the best property investment strategy for you.
On the flip side, if this isn’t your mindset and you’re willing to put in the hard work when it comes to property investment, then make sure that you approach property investment as a business from day one.
3. Not Understanding the Tax Implications of Property Investment
It’s important to understand all property investment tax implications. As a first-time property investor, you might be tempted to avoid these tax rules altogether and focus on making money instead.
This is not advisable at all! You need to take care of your taxes if you want property investing to go smoothly for you.
Property investors are taxed just like any other business owner in most cases. This means that when it comes time to file your returns, rental income will have its own section alongside other sources of revenue from your property investments.
The good news is that there are deductions within property investments. This can help lower or even eliminate some taxable rents each year.
For property investors, this is also about keeping yourself and your property investment business legal. This is especially important if you’re looking to keep your property investments long-term.
It’s always a good idea to look into property investment tax implications before diving in headfirst as a first-time investor. Just like any other type of investing or business venture, ignoring taxes can be an easy way for property investors to run afoul of the law and face serious consequences down the line.
If you want property investing to go well from here on out, make sure that you take care of all applicable laws when it comes time to file your income taxes. You don’t want an investment that will ruin your life!
4. Not Knowing Where to Invest
If there’s one property investing pitfall that you want to avoid at all costs, it’s not knowing where or how you want to invest. This mainly goes for new property investors who are looking into property investment as a serious business opportunity.
There are many different types of real estate investments, including commercial property investment, retail property investment, and more. It can be easy for first-time property investors to get overwhelmed when thinking about the various ways to get involved with property investing.
This is why experience matters when it comes time to make smart decisions when investing in property. If this isn’t something you’ve already done before, take some time out of your schedule today and think carefully about the property investment you want to pursue.
There are many different types of investments. It is important to know what you want to do.
This is especially true if you’re looking for the best property investment returns as quickly as possible. The last thing that any first-time investor wants to do is spend a lot of time and money on the wrong investment.
So, if you’re thinking about investment property loans or investment property for sale right now, make sure that you do your research before taking the investment plunge.
5. Overlooking the Importance of Location
Another investment pitfall that first-time property investors want to avoid is overlooking location as a primary factor in their investment decisions. This isn’t about how good an investment could potentially be from a rental income standpoint, but rather where you’re able to invest your money and reap long-term returns for it.
Location is everything in real estate. You can have the best property on paper, but if you’re not able to find good tenants or buyers for your investment, then it’s all moot. Location comes before anything else when it comes to making money with property investing!
It might seem like a good idea to invest in the cheapest property you can get your hands on. But that’s not always going to be the best investment. So, before you invest in any property, do your due diligence.
Don’t just go for the lowest price point unless that’s truly going to work with your long-term goals as a first-time investor. Otherwise, it will be easy to get burned if you’re not careful.
6. Not Knowing How to Find Good Tenants
It’s one thing to find good properties in great locations when it comes time for property investing. But what about finding the right tenants? This is something that many first-time investors don’t have experience with.
Finding the best renters or buyers isn’t always easy. There are all kinds of things you need to keep in mind before taking on your next potential tenant — even more so if this is going to be an investment rental property.
You’ll want to make sure that the tenant you get has a good rental history. You’ll also want to make sure that they’re able to pay their rent on time and in full each month.
You also want to avoid anything that could potentially be a deal-breaker. If managing tenants is something you’re not sure about, consider hiring a property management firm. They’ll take care of this for you so that you can focus on your other investment properties.
7. Lacking a Backup Plan
What do you do when something goes wrong with your investment?
The best-laid plans of mice and men sometimes go awry, especially in real estate investing, where there are so many uncontrollable factors involved. So make sure that you have some contingency plan for any possible scenario if things don’t work out as expected.
Even if it’s as simple as having a separate investment property fund for those unexpected curveballs, you should still have one. In the world of real estate investing, it’s always better to be safe than sorry.
Don’t let your guard down and assume that you’ll always be able to handle any curveballs easily. That’s the worst assumption you could ever make as a first-time investor, so avoid it at all costs.
The last thing you want is for something unexpected to happen with one of your investment properties and then have no idea what to do because you didn’t plan or have a contingency fund in place. So start planning now before anything goes wrong.
8. Doing Everything on Your Own
It might seem like a good idea to do everything on your own when you make investments. However, this is something that could end up biting you.
The truth is that you should have an experienced team in place when buying an investment property. This way, if something goes wrong, there will be people ready and waiting to help with whatever might come up.
If you don’t want things going awry on any of your investments, working with a professional can make all the difference between success and failure. So before signing off on any new properties as an investor, make sure that you have the right professionals guiding you through the process.
These professionals will mentor you and teach you the ropes of real estate investing. They’ll also make sure that your investment is a success, which is what every first-time investor wants to hear.
9. Not Using the Right Resources
There are so many real estate investing resources out there that you can take advantage of. So don’t let them go to waste.
While it’s true that, as a first-time investor, learning by trial and error is sometimes necessary, you still want to save yourself time whenever possible. If this means taking advantage of all the free or paid resources available at your disposal, do it. With enough research and planning ahead of time, you’ll be able to avoid making costly mistakes.
This will ensure that you don’t face any bumps along the road blocking your path towards success with property investing. There are plenty of great books on different strategies for succeeding in real estate investing.
So don’t let your lack of experience prevent you from using the resources that are out there. You’ll be glad you did when the process is over and done with, especially if it means avoiding any potential pitfalls along the way.
10. Using Poor Financing Methods
It goes without saying that, if you want to make any successful investments in real estate, you need a way to finance them.
However, just because there are many different types of financing methods available doesn’t mean that they’re all good for property investing purposes. In fact, some might be downright disastrous and should never even cross your mind.
So before going out shopping around for the best mortgages or other forms of financing on investment properties, do yourself a favor by taking off these five from your list:
- Anything with an adjustable-rate so high it’s practically usurious
- Loans where either party can back out at will
- Short-term options with ridiculously large penalties attached
- Any kind of financing where the lender has a large amount of control over your property
- Anything with prepayment penalties attached
If you do your research, make sure that any financing method is completely transparent and clearly defined before going ahead. Otherwise, it’s not worth looking into since it will only cause problems later.
Property Investing Pitfalls to Avoid
There are plenty of ways to avoid the most common pitfalls with property investing. The more you plan ahead and research, the more successful your investments will be.
So if you want to make a killing as an investor, always remember these 12 pitfalls that can sink any real estate deal.
We hope this guide has shown you how to invest in property. For more informative content, keep following our blog.
