The cold hard truth is that there are plenty of real estate investments that can only be called bad. Sometimes they involve a buyer lacking knowledge about the condition of the property, and the buyer does not do the required homework. Sometimes, investors are savvy but fail to consider all the risks. The inevitable result is financial loss. It can happen to even the rich and famous.
The worst real estate investments usually reflect a failure to consider as many factors as possible concerning the immediate transaction and future property characteristics. Following is just 5 of the most common real estate investment mistakes that can turn a potentially profitable transaction into a disaster.
- Failing to take into account all buy and sell transaction costs when calculating actual and potential net profits.
- Failing to calculate the true cash flow by taking into account tax consequences.
- Ignoring the price of area properties and area real estate market trends, leading to a poor investment in a house that is overpriced or in a declining neighborhood and difficult to sell (don’t consider a potential investment in a vacuum!).
- Forgetting to take into account required capital expenditures which can turn net cash flow negative.
- Buying houses to flip and discovering after purchase that the house needs major renovations
Seeing the Property in the Light of Information
There are plenty of expert resources available, and no one should invest in real estate without turning to those resources before making a decision. Any experienced real estate investor will tell you that each transaction has its own profile and doing a SWOT-type analysis will identify the good, the bad and the ugly. However, trying to do a SWOT analysis alone is not advised because there are just too many variables associated with each real estate transaction, and that includes the calculation of opportunity costs and cash flows.
Starting out right from the beginning has never been more important to successful real estate investing due to current market conditions. A good first step towards avoiding the worst real estate investments is to find a coach! With the right information and coaching you can easily avoid the worst real estate investments.