Investing in Commercial or Residential Real Estate

5 Mistakes That Everyone Makes While Investing in a Property

Everyone makes mistakes. Whether you are just beginning to build your real estate investment portfolio or you’re diversifying with more commercial properties to grow your wealth, you are not immune to the top five mistakes that everyone makes while investing in a property. If you can avoid these mistakes, you will significantly reduce your risk level on any investment, and you will greatly increase your chances of seeing profitable and fast ROIs.

1. Failure to Research the Market

First of all, whether you are investing in an REIT (real estate investment trust), using a real estate crowdfunding site, or joining an investment club, you should first do your own due diligence before you put any money in.

What kind of due diligence should you perform on a real estate investment? First, you’ll want to thoroughly research the market in the area over at least the past eighteen months. Check out vacancy rates for both residential and commercial buildings near your property’s site. Then you should look at other developments in the area, as well. Is there a positive catalyst (such as a new school, park, shopping center, etc.) nearby that will bring in more residents and businesses? Would your building and your tenants act as that catalyst?

If you know the area, its market trends, and what’s going on with other developments near yours, you will have a good idea of whether you are buying in a growing or dying market.

2. Failing to Develop an Exit Strategy

If you are purchasing shares in an REIT, do you know exactly what value your shares can drop to before you need to sell them to recoup your losses? If one of your real estate crowdfunding projects fails to launch, can the others support it? Can you afford to lose your investment entirely if none of your projects succeed?

With an exit strategy, you will not be banking on best-case scenarios. You’ll know with confidence that should Murphy’s Law rear its ugly head, you will not be in major trouble and your investment portfolio will survive.

3. Basing Investments on the Promise of Appreciation

Whether you’re Investing in Commercial or residential real estate, you should never buy an income property based on the promise that it will one day appreciate in value. While you wait on appreciation, you’ll lose money on property costs. However, if you buy a property based on its current earning capabilities, it will honestly not matter at all whether or not the building appreciates over time. Your monthly or quarterly cash flow from the property will far outstrip any potential appreciation over the long term. That’s why savvy investors buy income properties for their current value and don’t care at all about appreciation.

4. Attempting to Invest Without Expert Advice

No matter how much research you do on your market and the area around your investment property, you will never have the same perspective that a true real estate investing expert has. Without expert advice on which investments are best for your portfolio and which ones are more likely to do nothing for you or hurt your net worth, you are likely to make a lot of bad decisions concerning your income properties.

With a good real estate investment firm on your side, you’ll have access to all of the financial and real estate advice you need to make the best decisions for your portfolio.

5. Trying to Save Money With a DIY Property

Finally, if you are purchasing a property individually, you might be tempted to try to be your own property manager to save some money. Do not do this. The day-to-day expenses and time responsibilities of managing an investment property will catch up with you, and you will not have the time or energy to continue to invest in more properties and create more income streams for yourself. Turnkey properties may come with monthly fees, but the time and freedom you get with them more than make up for those fees.

Avoid these five mistakes that everyone makes while investing in a property, and you will love the results for your portfolio.