Real estate investing is glamorized in many places, from television to billboards to movies. With all of the societal temptations in place, it’s tempting to rush into the market. Before spending any money, however, you’ll want to learn to identify and avoid real estate investing mistakes. Here are the worst:
Not Understanding Your Adjustable-Rate Loan
If you don’t know the limits of your loan payments, you could wind up losing thousands of dollars in the process. Interest rates are at some of their lowest levels in decades, so if a seller offers a “creative finance” deal or an adjustable-rate mortgage, tread carefully. Your payment might increase when interest rates rise, depending on the terms of the loan, and it’s obviously to your benefit to pay low levels of interest.
Ignoring the Downside of REITs
I’ve met countless investors that enjoy the dividend payments associated with investing in real estate investment companies and trusts, but like all investments, the price you pay will fluctuate. Be aware of the fact that the dividend payment and value of your REIT can go up and down, and that like any other investment, you should understand exactly what it is you’re buying before jumping in.
Ignoring Illiquidity
Investing in property is quite different from investing in the stock market, particularly in regards to liquidity. You can buy or sell a stock in minutes, whereas the same can’t be done with property. Large transaction costs are typically involved in the space, and buying and selling rental properties or houses involves a number of steps and lost of time.
Thinking that Flipping Houses is a Quick Way to Make Money
Contrary to what you might see on HGTV, flipping a house doesn’t happen in one hour. Before deciding to flip residential real estate, read some real estate investing books first. Buying a property at auction often requires an all-cash purchase, and often, you won’t get to view the inside of the house.
Underestimating Costs
Whether you’re interested in buying rental homes, retail real estate, or industrial properties, costs can get out of hand quickly. Be sure to overestimate the costs involved in maintaining real estate, rather than underestimate. Real estate management includes everything from closing costs, to repairs, to commissions, and it can be quite expensive if not managed carefully.
Source: Philly.com