Three Most Common Issues for Beginning Real Estate Investors
The allure of real estate investment can draw many people in to the world of fixing and flipping homes. Given its low barrier to entry and potential for quick profits, many assume that real estate investment is both straightforward and easy to navigate.
The reality is that real estate investment — when executed poorly — can be more of a nightmare than that dream scenario many imagine it will be when they start.
As a result, many beginner real estate investors experience several challenges along the way that ultimately keep them from their return on investment (ROI) goals, including these three most common issues.
Common Issue #1: Biting off more than you can chew
The exposure to real estate investment that most beginners experience is through the lens of television. Networks like HGTV often paint a pretty picture for investors, showing real estate investment as a fast, exciting and often profitable venture.
With that in mind, beginning real estate investors often go into their first properties with big plans for their home rehab — add square footage, knock down walls and other major renovation ideas. Unfortunately, this kind of work often requires additional projects like plumbing, moving air conditioning ductwork — all of which are costly both in time and money. And now, those early expectations of turning the first home into a masterpiece are long gone as time keeps passing and the costs pile up.
Instead of diving right into real estate investment with a major home renovation, consider starting small while learning the business. Smaller improvements, such as fresh paint, updated appliances, new flooring or additional curb appeal projects is a great way for new investors to not tread water in just their first few investments.
As always, proper preparation prior to an initial investment will help beginners focus on mastering smaller parts of the real estate investment business.
Common Issue #2 Not understanding the market
Investing in real estate requires a significant amount of research in order to make the profit on the back-end. Arguably the most important aspect of this preparation is researching the markets where potential investment properties are located.
Without a real sense of what the market will bear, beginning real estate investors will find their properties not getting the ROI they expected.
For example, a beginning investor sees a house and wants to rehab it with plans on buying it for $150,000, pouring some money into it for renovation and then selling it for $250,000 because a similar house sold for the same amount only five miles away. The problem is that, although close by, the smaller house may have been on a more developed street — attracting higher paying buyers.
Failure to truly understand the market — both on a micro and macro level — will ultimately result in greater challenges for a new real estate investor.
Common Issue #3: The wrong timing
In regard to real estate investment, timing — in more ways than one — is a significant contributing factor to success.
When looking at the overall market, timing in the calendar year is important to consider. Historically, springtime is the best time to sell a house. More people tend to shop for homes as the weather gets warmer. Add in tax refunds, nice weather for moving and upcoming summer break from school for kids, and the spring months prove to “warm” the real estate market — making it the most advantageous time to sell a home.
On the other hand, buying a home is best in the fall months. According to realtor.com, October is the best month to get a deal when buying a home. A study of more than 32 million home sales over 15 years showed that on average, October buyers paid 2.6 percent below estimated market value at the time for their homes.
Leveraging these trends when it comes to real estate investment can help new investors make the most out of their time and money.
Another common mistake new investors make is having realistic expectations for the timing of the flip and sell process. It can be done swiftly, but it requires experts who have a team of contractors and subcontractors keeping the momentum of the project.
This also can be related to how much new investors choose to do on their initial projects — because maintaining a realistic timeline from the get go is difficult. On the contrary, new investors who start small with curb appeal projects, new paint, updated appliances and other easier projects will likely be able to meet a more desirable timeline of six months.
Although real estate investment can often be glorified in exciting and profitable ways, the truth is that a successful investment in real estate requires a lot of preparation, practice and patience — especially for brand new investors.
By starting small, conducting thorough research and understanding how timing impacts both the local and national real estate markets, beginning real estate investors are able to avoid common issues that often plague many in the same position and gain the valuable experience necessary for a successful real estate investment business.
ABOUT BAY MOUNTAIN CAPITAL:
Bay Mountain Capital has been in business for more than a decade, closing approximately 2,000 loans over that time period. We specialize in financing all types of residential and commercial property investments throughout Texas. Using a common sense and value added approach, we strive to incorporate these principles into our underwriting and closing processes. We are a Dallas Hard Money Lender, but we do business in Austin, Houston and beyond!
As a direct lender, Bay Mountain Capital can close a loan within one day after receiving clear title and a complete file. The process generally takes from two to three weeks, but can be accelerated where circumstances require it.
We are an asset-based lender, which means that qualification requirements are limited. Our rates and fees are among the lowest in the industry.