Experience is the best teacher when it comes to real estate investing. Your first deal will be the most difficult, yet you still need to move forward to get started. We’re here to help ease that transition into investing in Redding real estate.
Mistake #1: Bad Financing
Bad financing can be the biggest mistake that knocks you out of the game. Real estate investors most often lose money or go out of business from financing issues. What do we mean by bad financing? It could a combination of the following:
- High interest rate
- Adjustable interest rate
- High monthly payment
- Personal recourse
If an investment property has a high interest rate, it’s possible it will have a negative cash flow. As a lender, we want to see you win financially. If a jumbo loan doesn’t make sense for you, then it doesn’t make sense for us.
Mistake #2: Bad Location
Real estate value always begins with location (even when playing Monopoly). The people and businesses who will rent from you begin with location, then move on to other criteria like the lot and the house. Because it’s so important, you should study the best and worst locations when it comes to Redding real estate.
Buying a house at below market price, with excellent financing, typically sounds like a good idea. But if the location is awful, it will be tough to attract good tenants.
On the other hand, if you buy properties in good locations, and even make mistakes on them – like paying a little too high of a price, the good location can help bail you out.
Mistake #3: Misjudging Resale or Rent Value
You could argue that the number one job of investors is to understand how your customers will make buying decisions. That translates into the value of the investment. The more confident you are of the full value potential, the more confident you will be making a purchase that you know will earn a profit.
This is a skill you must learn and refine in your investment career, but you can keep these tips in mind:
- Reduce your target market to a relatively small, manageable area.
- Study transactions in your market daily. Like weight training, it keeps you fit and sharp.
- Hire professionals for assistance. Utilize a real estate agent or appraiser to determine resale value. Use property managers to determine rental values.
- Take real estate investment courses and continue your education.
Mistake #4: Underestimating Repair Costs
It is inevitable that you will underestimate repair costs at some point. But you want to avoid enormous cost overruns that could cause you to run out of cash or face other problems.
To avoid large mistakes, learn a good repair estimating system.
HomeAdvisor offers a resource that shows the real cost of repairs from real people. This will help give you a straightforward and honest budget of what to expect. There’s 300 different types of projects and over 1 million costs reported.
You can also find local resources in Redding, like real estate club meetings, or referencing more knowledgeable local investors or contractors.
Mistake #5: Running Out of Cash
Your investment properties are like your race car. Cash is like your car’s fuel. When out of fuel, even the fastest race car in the world sits still. If you run out of cash, even the best investment property can quit building your wealth.
You definitely want to avoid running low or running out of cash. This usually happens for a couple of reasons:
- Underestimating repair costs (see mistake #3 above)
- Underestimating future capital expenses on a rental property
Capital expenses are big ticket items like a roof or a heating-air system replacement. If these costs hit you unexpectedly, it can become a big problem.
The greatest rewards always belong to those who were willing to take a risk. Consider the reasons to invest in Redding real estate, keep in mind these mistakes to avoid, and stay optimistic.
The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.
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