November 7, 2018
Starting Your Real Estate Career
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 investing is easy. Unfortunately, when executed poorly, it can be more of a nightmare than the dream scenario many imagine. As a result, many first-time real estate investors experience several challenges along the way. Ultimately, these challenges keep investors from seeing returns on investment (ROI). Here are 3 of the most common issues for investors.
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. This is mainly due to shows portraying real estate investment as a fast, exciting, and often profitable venture.
With that in mind, novice real estate investors often go into their first properties with big plans for rehab. Perhaps they plan to add square footage, knock down walls, or perform other major renovations. Unfortunately, these rehabs often require additional projects like plumbing, or moving air conditioning ductwork. Such projects are costly both in time and money. And now, early expectations of turning the first flip into a masterpiece are long-gone as the costs accumulate.
Instead of diving right into real estate investment with a major home renovation, consider starting small while learning the business. Simpler improvements, such as fresh paint, updated appliances, and new flooring, are easy ways to increase value
Proper preparation prior to an initial investment will help beginners focus on mastering smaller parts of real estate investing.
Common Issue #2 Not understanding the market
Investing in real estate requires a significant amount of research in order to make profits on the back-end. Arguably, the most important aspect of this preparation is market research to discover potential investment properties.
Without knowing what the market will bear, first-time real estate investors will struggle obtaining the ROI they expect.
For example, a beginning investor sees a house and wants to rehab it with plans on buying it for $150,000. They’ll want to complete renovations and sell it for $250,000. They assume that because a similar house sold for the same amount only five miles away, it’s feasible. Unfortunately, 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.
Setting Expectations
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, beginners are able to avoid these 3 common issues for investors just starting out in real estate. These issues plague many in the same position, and savvy ones will gain the valuable experience necessary for a successful real estate 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 Texas Hard Money Lender based in Dallas, but we also do business in Tennessee, Georgia, Oklahoma, 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.