10 Common Mistakes to Avoid When Investing in Your First Real Estate Property

Investing in real estate can be a great way to build wealth and secure your financial future. However, if you're new to the game, it's easy to make mistakes that can end up costing you a lot of money.

Believe me, I speak from personal experience. My husband and I started investing in real estate in 2006 and we have learned what not to do more times than I’d like to admit!

To help you avoid some of these pitfalls, here are 10 common mistakes to avoid when investing in your first real estate property.

1.     Not doing enough research: Before you invest in any property, it's important to do your due diligence and research the market. Look into the current real estate trends, the local economy, and the specific neighborhood you're considering. This will help you make informed decisions and avoid investing in areas that are unlikely to appreciate in value.

2.     Underestimating expenses: Owning a property comes with many expenses, including property taxes, maintenance costs, and insurance. Make sure you understand the full extent of these expenses before you invest, so you're not caught off guard by unexpected bills. I think it is important to have a clear goal of how much cash flow you’d like to earn from your investment each month and then don’t allow yourself to purchase something that doesn’t align with your goal.  

3.     Not having a clear investment strategy: It's important to have a clear investment strategy before you invest in real estate. This will help you identify the type of property you're looking for, and ensure that you're making investments that align with your overall financial goals. Are you looking to have monthly cash flow or are you not as concerned with cash flow, but want to play the long game- appreciation? Decide this up front before you make a purchase.

4.     Overpaying for a property: It's easy to get caught up in the excitement of buying a property, but it's important to make sure you're not overpaying for it. Make sure to compare the price of the property you're interested in to similar properties in the area to ensure you're getting a fair deal. This can be especially difficult in hot markets where you feel like you are being outbid by everyone else. Stick to your budget and be ok with passing on a property that gets overinflated by eager cash buyers.

5.     Not working with a real estate agent: Working with a real estate agent can be incredibly helpful when you're investing in real estate for the first time. They can guide you through the process, help you find properties that meet your investment criteria, and negotiate on your behalf.

6.     Not getting a thorough inspection: Before you buy a property, it's important to get a thorough inspection to identify any potential problems or issues. This will help you avoid costly repairs down the line, and ensure you're not buying a property that needs major renovations. A great example of this is paying for a sewer scope. You could have a $7500 - $10,000 repair waiting for you underground, that could have been avoided by paying for $250 sewer scope.

7.     Not having enough cash reserves: Owning a property can be expensive, and it's important to have enough cash reserves to cover unexpected expenses or repairs. Make sure you have enough savings to cover at least three to six months of living expenses before you invest in real estate. Owning rentals can bring repairs that stack up at the same time. An Arizona monsoon can result in thousands of dollars in roof repairs. Or a hot summer can result in several older HVAC units all needing to be replaced at once. No fun!

8.     Not understanding the rental market: If you're investing in rental property, it's important to understand the rental market in the area you're investing in. This will help you determine if the property will be in high demand and generate a positive cash flow.

9.     Not considering the long-term: When investing in real estate, it's important to consider the long-term potential of the property. Will the property appreciate in value over time, or will it become a burden as the neighborhood changes? Make sure you're investing in a property that has a good chance of appreciating in value over the long-term.

10. Not having a plan for exit: Finally, it's important to have a plan for exiting your investment. This could be selling the property or refinancing it to extract equity. Make sure you have a plan in place, so you're not stuck with a property you can't sell or afford to keep. It is best to have multiple exit strategies. If you only have one, you may want to rethink purchasing that property.

Investing in real estate can be a great way to build wealth and secure your financial future, but it's important to avoid common mistakes. By doing your research, having a clear investment strategy, and understanding the expenses and risks involved, you can ensure a successful investment in your first real estate property.

My husband and I have changed our lives by investing in real estate. We never had corporate jobs and have always been entrepreneurs, so rental properties have become our retirement plan. Please reach out if you have questions on how to get started. I’d love to chat!