You’re thinking about buying your first apartment or house. It’s a big step, and you’ve done a lot of research that tells you this is the best time to buy. But have you thought about what to expect? Here are some rookie real estate investment mistakes that can cost you thousands of naira, but there are ways you can avoid them and still get what you’re looking for in an investment property.
Mistake #1: Not Being Clear About Your Goals
Making a real estate investment without knowing what you want is the biggest mistake you can make. Just like with anything else in life, if you don’t have your goals set, you’re going to be all over the place and make bad decisions. And that’s exactly what will happen if you jump into the real estate investment game without any clear idea of what you’re trying to accomplish. Before anything else, ask yourself these questions:
- -How much money are you willing to risk?
- -What kind of property are you interested in?
- -How hands-on do you want to be?
When you have the answers to these questions, it’ll be a lot easier for you to find the right property and make smart decisions along the way.
Mistake #2: Overextending Your Finances
It can be a huge leap of faith to invest in real estate, and oftentimes there’s an urge to bite off more than you can chew. Don’t fall into the trap of overextending your finances! Be sure to calculate exactly how much you can afford, and create an emergency fund equal to at least 3-6 months of your projected expenses.
The key with real estate is figuring out a balance between not taking too much on and spreading yourself too thin. For example, you don’t want to buy a commercial property if you don’t have enough funds for maintenance and repairs. In addition, try not to stretch yourself too thin by investing in multiple properties or taking on bad debt. Better yet, consider partnering with other investors so that costs stay low and profits stay high. Our home advantage plans will help you achieve this.
By doing your research ahead of time, prioritizing cash flow over appreciation, creating an emergency fund, chopping up costs into smaller chunks and teaming up with another investor, you’ll be able to make smart investments that don’t tip the financial scales too far in either direction.
Read Also: Taking the Lead: How to Handle a Rent Increase From Your Landlord
Mistake #3: Overlooking Due Diligence
Another rookie mistake you should avoid when investing in real estate is overlooking due diligence. When you’re purchasing a property, it’s important that you look into the market and ask yourself if this is the right time for you to make the move.
Due diligence means that you don’t just look at the number of bedrooms or bathrooms – although, that’s definitely important, too – but also determine if the location is conducive or if it would take a lot of effort to transform it into something profitable. Ask yourself: how much will it cost me to make repairs? How competitive are rents in this area? Is there potential for capital appreciation?
The due diligence process is not only about research and crunching the numbers; it’s also crucial to make sure that the property complies with relevant regulations and meets safety standards. Ignoring this step could end up costing you more in the long run.
Mistake #4: Forgetting About Taxes and Insurance
Taxes and insurance costs are not something we often think about when we buy a home, but they can add up quickly over time. It’s important to ensure that your insurance policy covers flood damage, fire damage and vandalism – as well as liability coverage for injuries or property damage – so that you don’t end up paying more out of your pocket than necessary after an incident occurs on site or during construction.
Tips for Avoiding Rookie Real Estate Investment Mistakes
Now that you know what to avoid, here’s a few tips to help you dodge these rookie mistakes.
- Make sure you have a clear plan for your real estate investment. Think about your financial goals and objectives, and decide on the type of property that is best for your situation.
- Don’t just rely on broker or agent recommendations when preparing to invest in a new property. Do your own due diligence and research the area’s condition – including the crime rate and average rental prices – and compare it to similar properties in neighboring areas.
- Take an honest look at your finances before getting into investing. Make sure you have enough cash flow to cover any potential rental vacancies or other unexpected expenses that could arise in the future.
- Make sure you understand all legal aspects of real estate investment before taking the plunge. Find out about local regulations and any other red tape that might be involved with owning and managing a rental property in your area.
- And finally, be aware of any tax implications that come with owning rental properties by consulting with a qualified tax professional if needed.
Following these simple tips will help you avoid the most common real estate investment mistakes made by new investors, and set you up for success in the long run.