3 Mistakes to Avoid Making as a Buy & Hold Real Estate Investor
As a real estate investor, one needs to be savvy about not only property, but also business. Buy and hold investors often make easily avoidable mistakes that end up costing them a lot of money. To minimize losses and maximize profits when investing in real estate, one should focus on research regarding property management, quality, and cash flow potential from a given real estate lot or building.
The first common mistake that buy and hold investors make is overpaying for the property. This is an easy pitfall to fall victim to. Mitigating losses from overpayment can be done by understanding the area in which the property is located, prices that surrounding properties have sold for, and how much the prospective property has sold for in the past. The real estate investor needs to take into consideration the current quality of the property, whether it has deteriorated since its last sale, or whether it has undergone any recent remodeling or renovations. Putting an offer in that is significantly under the listing price will add wiggle-room within the budget to account for closing costs and realtor fees and allow the purchase to remain profitable for the investor.
Another faux pas that occurs when purchasing buy and hold real estate is buying because of speculated appreciation. Like cars, houses are depreciating assets. This means that without the further investment of money, they will deteriorate and lose value over time. People hear of house appreciation and think that this is the standard throughout the market. Real estate appreciation does occur, and can be the source of great financial gains, but it is drastically dependent on location. Certain cities and neighborhoods are viewed as desirable for whatever reasons sway home and property buyers at a given time, and they appreciate because of this demand. Buying outside of these “hot-spots” with the intent to hold and sell at an appreciated worth is a common mistake of the novice real estate investor.
Finally, a buy and hold investor can run into trouble by not treating their property investment as a business. Like any business, a real estate purchase needs to be managed for associated cash flow in and out of the investment. If the property does not make money, it does not make sense.
Buy and hold investors should not be swayed from purchasing properties for fear of losing money because of the mistakes just mentioned, rather they should be heartened and informed in their decision making. Investing of this sort can be very profitable, just be sure to research and consider each purchase before writing the check.