Investing in real estate can be lucrative and profitable; full of outstanding opportunities to build wealth and create a portfolio that generates returns now and in the future. However, there are also risks. Expensive mistakes can easily be made, even by experienced investors.
Today, we’re sharing some of the most common pitfalls in the Colorado Springs rental market, and how you can avoid them when you’re buying and managing an investment property.
Buying the Wrong Property
Sometimes, it’s difficult to remember that you really aren’t buying a home for yourself. You’re probably not going to live in the investment home that you buy, so it doesn’t have to be exactly what you’d choose if you were moving in. Many investors fall in love with a house and then become emotionally attached, even if it won’t make a good investment.
When you’re identifying investment opportunities and looking for a property, choose something that will be attractive to renters. Consider homes that will generate the most income and the best return. Don’t buy homes with all the most expensive finishes. Tenants want something clean, comfortable, well-maintained, and in a great location. Buy the right property.
Not Establishing Investment Goals
It’s difficult to succeed with your real estate investments if you don’t know why you’re investing and what you’re hoping to achieve. Before you buy your first property or continue adding to your portfolio, make sure you understand what your investment goals are. Some investors want to earn as much cash flow as possible and for other investors, tax benefits and property value appreciation are more important. Every investor is unique and every investor’s needs are different. Make sure you know what you’re doing and why you’re doing it. Otherwise, you won’t make the best decisions.
Forgetting to Consider the Costs
When you’re projecting ROI and estimating your cash on return, it’s easy to forget or overlook the expenses that are involved in owning rental property. This can be a huge pitfall because it causes surprises and disappointments. Before you buy an investment property, get a clear estimate of the amount of work you’ll need to put into it before it’s ready for the rental market. Estimate the amount you’ll need to spend in repairs and maintenance every year. The age and condition of your home will impact this number.
You also need to consider vacancy and turnover costs. It would be wonderful to find a tenant who stays in place for 20 years, but that’s not likely to happen. Marketing and advertising costs, screening and credit report costs, and professional fees like property management, accounting, and legal expenses also need to be considered.
Perhaps the biggest pitfall to investing is doing it alone. Smart investors know that they will earn more, spend less, and avoid costly mistakes when they work with an experienced property management company before they buy and during the leasing period.