Investing in Redding real estate is a craft that is shaped by experience. If you’ve never made a property investment, these tips will ease your way into making your first deal.
This is Part 2 of this blog series. Did you catch our post last week? If not, take a moment to read the first 5 investing mistakes to avoid when it comes to Redding real estate.
Now, let’s get to this week’s investing tips.
Mistakes #6: Letting Emotions Drive Your Decisions
This is a typical mistake for newbie investors. And it’s understandable. Entrepreneurs naturally have more enthusiasm and that should be expected when you’re chasing your first deal. But you can’t allow emotions to drive big financial decisions.
To counterbalance this, gather statistics and calculate as many numbers as possible to make sure what you are doing makes sense. Start with this:
- Property details – Physical design of the property, square footage, utility metering design
- Purchase information – Basic cost information such as purchase price, cost of any home renovations, and upfront maintenance
- Financing details – You’ll want to talk to a loan officer to get specific details about down payment and the cost of the loan
- Income – Calculate how much revenue the property is going to generate, typically from rent payments
- Expenses – Includes all costs, such as property taxes, insurance, and maintenance
Also, run the deal by a third party and get their opinion on whether or not it’s a good idea.
Mistake #7: Choosing the Wrong Real Estate Strategy
There’s no perfect real estate strategy, but you can find one that fits with your short-term needs and long-term goals. Most importantly, here’s two tips Warren Buffett gave about investing:
- Don’t lose money
- Don’t forget Rule #1
Remember why you’re doing this and what you’re getting into. If this is your first investment, we suggest house hacking – this is when you buy a property and live in one of the bedrooms or units, and have renters from the other units cover your mortgage. This is a great way to learn the real estate strategy that works best for you – with minimal risk.
Mistake #8: Choosing Bad Contractors
Using multiple contractors to get the job done right is an expensive mistake. Flipping houses is becoming a popular motive behind Redding real estate investing, so it’s important to find contractors who will get the do a professional job, clean up after themselves, and finish on time.
Finding the right contractors when you’re doing a fix-flip or rental deal could make or break your success.
Mistake #9: Not Using Your Due Diligence Period
Some experienced investors make offers with fast closings, in as-is condition, and with no due diligence period. This may help them get a lower price, but for your first deal this is probably not the best route to go.
Instead, include a short but reasonable due diligence period that allows you to get out of the purchase contract if you find a problem.
Here are a few of the important things I usually do during due diligence:
- Obtain a very good professional third party property inspection
- Repair estimates (Mistake #4 in our last post)
- Evaluate zoning and local ordinances
- Get a professional third party opinion of value and rental comps
Basically, you want to double check all of the key assumptions you used to make your offer. If you find that you made a bad assumption, you may need to renegotiate or walk from the deal. Some of your best deals may be the ones you don’t do.
Mistake #10: Not Learning From Your Mistakes
You’ve now read 9 mistakes to avoid, but this is just the beginning. No matter what, you will make mistakes – and the biggest one you could make is not learning from them.
Once you become an investor, you also become someone who never stops learning. Real world lessons always make for the best teachers.
Every investment comes with risk, but don’t let that stop you from taking the chance. Get a professional opinion, and sit down with a loan officer who does this for a living.
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.
* For loan examples and more information visit our disclosure page at https://www.uslendingcompany.com/disclosures/