Three Things You Should Never Do in Real Estate Investing

Learning how to invest in real estate is just like any other career path or business venture… it will require a lot of practice, experience and research to become truly good at it. Similarly to many other things in life, there are just too many people who get all pumped up in the pursuit of wanting to get into the real estate investing game, but give up due to frustration. However, in order to better help you understand what concepts you should avoid in real estate investing, here is a nifty guide…

#1 Limiting Yourself to a Specific Market

When it is time for you to select where you would like to invest, most people choose their local market.  While your local real estate market might feel like the safest place to start, because you are already familiar with it, it doesn’t actually mean that it is the best option. There is no such thing as boundaries when it comes to the windows of opportunity, and that is something you should keep in mind when you are looking for your next real estate investment.

For example, it is going to be supremely difficult for somebody living in a highly expensive metropolitan area, such as NYC or LA to find a good long-term rental that will generate strong yields.  The high price points in these areas also presents an obstacle for many prospective investors. With so many other possible real estate markets out there that are displaying stronger demands, better economic stability and higher returns, why ignore them in pursuit of something that might not be worth the risk?

#2 Over or Under Renovating

Learning the number of renovations each individual real estate rental property requires is crucial in sealing a good deal. Real estate property investors should be aiming to renovate to the level of the local market condition and take the appropriate measures to see what the renovations requirements are in each neighborhood, as they can vary, even if they are within the same city.

#3 Understanding How Debt Works

Real estate property investors usually use debt for one of two main reasons…

  1. To improve returns – instead of splashing 100K of equity on one house, if you finance well, you will be able to use that same 100K and spread it out among several more properties and put down a smaller down payment on each house.
  2. To expand their buying power – if a real estate investor can get debt at a lower interest rate than the net yield of the real estate investment, then the levered return of the investment will be a lot higher than if it was bought via cash.

However, it is important to note that while both of the options mentioned above might seem really attractive, it does come with risks and hence, it is important for real estate investors to be well versed with how debt works.