How to avoid losing money in real estate

20 March 2020

Investing in real estate can be a very tempting prospect. However, this business has many potential risks and pitfalls, especially for beginners. Investing in real property is the time game – you need to gather a great amount of information before acquiring any type of real estate. Also, it takes a lot of time for the investment property to grow in value. Furthermore, if you are purchasing the piece of real estate with the intention to rent it out in the future, you may face some problems related to unreliable tenants and other possible negative conditions. 

After you have learned how to earn money through real estate investing, you need to know how to prevent yourself from loss of your income. This knowledge is vital for beginners in real estate investing. In this article, we will consider the common tips on how to receive positive cash flow and avoid mistakes. Let us describe the common ways to avoid losing costs in the real estate business.

Get Real Estate Education

To educate yourself in the real estate field you do not need to take special courses or to earn a college degree. Collect as much information as possible about investing in residential, commercial and industrial real estate. You can collect the facts from different sources like specialized blogs, books or search via the Internet. The important component of education is practice and your experience gained through the real transactions. 

You can share experiences with the other real property investors or real estate agents. They are the reliable sources of the verified information about investing. Also, they will be glad to share their knowledge with the newcomer about earning and losing money in the real estate industry. 

Find The Right Real Estate Market
Find The Right Real Estate Market

Find The Right Real Estate Market

The most common reason for losing money in real estate is due to investing in the wrong market. Sometimes even hot real estate markets are not suitable for buying the investment property. 

To define the right market for investing, the investor should rely on two things: real property investment instruments and the knowledge of the real estate market. Self-education does not focus only on the basic information from the other investors, from the books and the internet. Education should continue. That is why it is important to gather information about trends in the industry and talk to mentors. 

Consider investing in your local real estate market. This strategy has a lot of benefits – for instance, you are already familiar with some vital options for investing. In any case, you need to conduct research on the employment rate and working opportunities in the area, infrastructure, crime rate, etc. 

One of the most important factors is the affordability of the property or the people’s ability to buy if. The affordability consists of three major components: the price of the house, household income or the average amount of money that people are earning, and interest rates. 

When Should You Buy A House
When Should You Buy A House

Define The Right Time

You already know that the most important criterion of successful investment in real estate is the location of the property. Besides the location, there is another key option worth considering. This is the time of investing. The best time to make the investment depends on the trends in the real property market. 

There are specific times of the year when your investment will be successful. For instance, if you are investing in the seller’s market, the most suitable time for you will be winter. Different real estate experts highlight that the best time for buying the investment property is Christmas. During the spring season, the demand for investment properties goes up and the prices usually rise along with the competition. Real estate investors have more opportunities to negotiate the price of the property. According to some studies, December 26th is the most perfect time to purchase a piece of real estate on discount conditions. 

Analyze Investment Properties Thoroughly

Successful investment depends on your ability to choose the most profitable property. Before investing in real property, analyze the potential investment property and examine the marketing conditions very carefully.

Investment property analysis

During the investment property analysis, you should examine your property from a very possible angle that may lead to the loss of money in the future. Think of the location of the potential investment property, analyze the neighborhood areas, try to look at your house or apartment from the point of view of the tenants. 

Calculate the potential income and cash flow. Will it be positive or negative? Analyze the amount of finance you will receive from the rental property. A home inspector will help you in this matter – he will examine the drawbacks of the piece of real estate and tell you how to fix them and gain positive cash flow from your investment property.

Real Estate Market Analysis
Real Estate Market Analysis

Real Estate Market Analysis

One of the worst ways of losing money is overpaying for an investment property. If you purchase the piece of real estate that is too expensive for you, the mortgage can be too high. This can result in an increase in rental payments. The tenants can be dissatisfied with these conditions and refuse to rent your property. 

The best solution to this problem is market analysis. It will help you to identify the reasonable price of the piece of real estate. If the price is too high, it is better to search for the other property. If the price of the property is below the average prices on the market, you can purchase this real property and then sell it very quickly. Thus, you will receive a good profit from this investment. 

Use Real Estate Tools

The following method is very useful in terms of defining whether your future investment will be successful or not. With the help of investment tools, you can analyze your future property for investment and decide, whether it is worth financing or not. For instance, you can try property calculators on some specialized real estate websites. 

There are plenty of services that may help you to find the best investment property. For example, there is a heatmap that allows investors to find real estate in certain areas, applying different filters like listing price, rental income, cash-on-cash return, and occupancy rate. 

Online property finders are the investment software tools for beginners that allow investors to choose the perfect property that meets their criteria. You may search the property on the basis of the real estate markets where you would like to invest, optimal rental strategy, preferred type of property (condo, multi-family house, single-family house, etc.), the budget and the number of units. 

Real Estate Tools
Real Estate Tools

Apply Working Techniques 

When all the previous steps are completed, it is time to think about how to deal with property management. If your goal is to purchase the property for renting it out, you need to consider some property management techniques. These techniques are quite simple:

  1. Stay in a good relationship with the tenants. Resolve the requests from the tenants as soon as you can.
  2. Maintain the property, make the necessary upgrades and renovation. Visit your property on a regular basis to make sure that you are aware of everything that is going on.
  3. Stick to the fixed budget. Add some extra costs to your budget in case of some unforeseen circumstances like damage caused to the property by disaster or need for urgent repair.

When any of these three conditions is not fulfilled, there is a high risk of losing money. 

Consult the experts

One of the biggest mistakes committed by beginners in the real estate business is the avoidance of professional help. If your goal is to gain profit through real estate investing, then some insight from experts will be very helpful. Talk to the other real property investors, real estate agents, lawyers, and financial advisors. The amount of money that you would pay for these consultations is worth spending, it may save you from the bigger potential losses in the future. 

Conclusion 

When you are a first-time investor, there is a great possibility of the risk of losing your money. As we know, forewarned is forearmed. That is why it is so important to take into consideration all the possible future risks and think of the strategies to cope with them. We have enlisted some common situations and problems that can be faced by the beginners in rental property investing. Also, there were some tips for dealing with these problems. 

If you apply our advice at the beginning, before the purchase of your first piece of real estate, we can guarantee you that your investment would bring a good positive revenue in the future and you would avoid losing money.

Consider the following tips to make a successful investment:

  • Take small steps. Start from buying cheap properties that do not require active management and much maintenance. 
  • Search for the houses that are being sold below market value.
  • Hire a real property agent. The experienced professional will help you to manage your issues in the most effective way. 

Consult with the real property manager. This specialist will manage the process of leasing the property and help you to increase your revenue.

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