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Avoid These 6 Pitfalls When Investing In Real Estate

Just like any form of investment, real estate also has its own unsuspected risks and difficulties. Thankfully, most of these pitfalls are caused by human error which can be avoided if the investor does their homework first before buying or building a property.

Get your pen and paper. Prepare to write down all these pitfalls and the tips you can use to avoid incurring financial losses.

1. Buying a house without a plan

It is tempting to buy a house on a hot market especially if you have the money to do so. But going along to the buying frenzy could put you in financial hot water. Especially if you don’t have an investment strategy for the house in mind because the property will sit without increasing value.

Before buying a house, look at it first and find the possible investments that can be done from it. Or only buy a property that fits the investment type you have in mind. Click here and here for home inspection tips.

2. Skimping on research

Like buying a new laptop for tech savvies, it is also important to exercise due diligence before buying a home. And the research you’ll do will also depend on your type of real estate investment.

Ask the home seller questions like, “Is the neighborhood peaceful?”, “Are there schools, markets, and parks nearby?”, and “Is the area prone to natural disasters?” A beautiful home is no good for investment if there’s a college frat house partying every night nearby while being far from amenities and workplaces.

3. Chasing the highest yield

It’s not bad to chase the highest yield in real estate investment. But to get big profit margins you must also take huge risks. That includes costly renovations, vacancies, and cold market times. If you want to go for the high-risk, high-reward path of real estate investment, you must prepare yourself by having a proper budget for renovations, months of planning, and emergency funds. Otherwise, you could face serious business challenges.

4. Waiting for an unrealistic opportunity

Successful real estate investors capitalize on strong markets, bad investors wait for the perfect investment property to appear. Don’t be a part of the latter. Don’t wait for your ideal home to appear because it will be extremely rare.

Instead, look for properties that best fit your investment plans. For example, look for properties in areas where there’s a high concentration of retiring seniors if you’re planning to house-flip. When you see an opportunity, even if it isn’t the one you’re specifically looking for, grab it.

5. Failing to understand diverse real estate regulations

For new real estate investors and those in the rental category, you have your own rules and regulations set that mirrors the way you want to do business. That’s perfectly normal. But if you stick strictly to your terms, you could get in trouble with the authorities.

Each state, city, and municipality have different laws for tenant and landlord relationships. If you’re a new real estate investor or an investor entering a new locality, it is best to learn everything about the real estate laws in the area to avoid costly disputes.

6. Failing to understand the implications of making legal mistakes

As a follow-up to #5, not knowing the fines for breaking regulations can cause you to feel confident in making legal mistakes. These fines can shock you. There is a trend among states and cities that they include treble damages which would cost you three times or more than your actual fine, especially for security deposit disputes.

For example, if you have violated a law by collecting $1,200 as a security deposit, the court will ask you to refund that amount to the tenant even if they have incurred damages on your property. Plus, you’ll face punitive charges of damages four times the security deposit amount adding $4,800 to your bill. And don’t forget, the cost and fees of lawyers.

You don’t want to be in this situation. Read the laws well of the area you’re going to make a real estate investment in and adhere to those laws.

Every real estate investment can be successful if the investor prepares, plans, researches, and gets familiar with the local law before buying a property. If you are new in the real estate world, it is important to know all of the potential pitfalls you might experience in your investment strategies so that you can avoid them.