by Sterling White
Having been a real estate investor for quite some time now, there is absolutely no doubt that I am completely in love with it. During my career, I have generated income using almost every single strategy in the book. Sure, not all the deals that I undertook had a fruitful outcome, but the thing is, if you choose not to go for something, your future is sealed to only one option: nothing.
I am a firm believer in going after your dreams and taking action (well-educated action, of course!). However, it is highly important that you don’t get discouraged if things don’t go the way that you plan because sometimes, things don’t work out. Maybe you missed something in your research or you simply didn’t do something right — and sometimes things just happen that are completely out of your control.
Imagine your excitement when you have almost completed the renovation of a property with a potential home buyer ready to purchase. However, one of the major employers in your area suddenly announces that their company is bankrupt, and they are about to lay off truck loads of employees in their company.
The people are beginning to migrate out of the area, and your buyer has pulled the plug on the deal. Sure, you can go back to renting the property, but with the rental rates declining dramatically, you are sure to earn at a reduced profit.
Secret Structural Issues
In a large number of cases, a really good inspection can seriously help you to avoid some tragic conditions that could lead to major problems. However, there are times when things turn up in a property that just weren’t present until they were actively sought after.
Those being said, while some properties don’t work out as planned due to factors beyond your control, the vast majority of them fail to meet your expectations as a result of investor-made mistakes somewhere in the process.
So, which mistakes can truly sabotage your investing strategy? How many of them will cause you to stop dead in your tracks and won’t even give you the chance to redeem yourself?
Taking a Short-Term View of a Long-Term Investment
There is a whole load of successful short-term real estate investing strategies, such as the classic fix and flip, wholesaling, and so forth. However, the buy and hold strategy for rental property is definitely the opposite of this, as it takes a long-term view of things.
What Buyers Do Right
- Get well educated about the housing market, i.e. economics, population trends, job market, etc.
- Understand the rental rates, demand, and competition of rental properties in the area
- Become well informed about purchase negotiating and how to buy right
- Perform solid analysis of possible costs and cash flow
Looking at this list, how on earth could you possibly go wrong? Well, the thing is, there are still some long-term considerations that you need to bear in mind in order to avoid eating up gains over time.
What Buyers Do Wrong
- Perform a good cost analysis in buying — however, there is a bad understanding of how to properly calculate for expenses
- Overestimate expected annual appreciation rate
- Underestimate the holding time to recoup investment and make a profit at sale
Sure, if you plan to buy and sell, then it is great to purchase a property at a discount to the current value. However, those of you wishing to go for the short-term profits should also weigh in long-term considerations, such as possible rental potential. This is simply because if you fail in the short-term, at least you have the long-term to fall back on.
All in all, the main point of this article is to inform you that real estate can be risky if there is lack of due diligence. In order to minimize the risk and maximize the gains, you can’t simply plan for what is going to happen in the short-term, as there will definitely be things that are out of your control that may happen. However, if you plan for the long-term too, you will always have a safety net to keep you from falling into a downward financial spiral.
Do you take a short-term or long-term view of your real estate investments?
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