Four Profit Killing Mistakes Made by New Investors
As a real estate investor, especially if you are brand new, you will make mistakes. Don’t get discouraged if you mess up, it happens to everyone. But, preparing yourself with how to avoid mistakes in the first place will save you valuable time and money. Here are four common mistakes rookie investors make, and how they can easily be avoided.
Not Assembling Your Team
You may think you can do everything on your own, but one of the keys to being a successful investor is having a team of experts to help you along the way! Build your team. Look for a real estate agent to help you sell the finished product, a real estate attorney to protect you and ensure the transaction goes as planned, and a reliable source of funding to finance your deal quickly. If your investment project requires any rehabilitation to be completed, you will need a dependable general contractor who is able to complete the work in a timely fashion, while staying within your budget. Many times, real estate investors need a bit of help with the complex accounting that is sometimes involved in these deals, so having a trusted CPA on your team is one of the best ways to make sure you are staying on track financially. Also, consider teaming up with an insurance agent who is able to guide you through the complicated world of liability protection.
Choosing Just Any Contractor
Whether you’re looking to completely renovate a home or just do a few minor updates, choosing a contractor can be one of the trickiest parts of any project! Unfortunately, there are often times where things go awry during the course of a real estate investment project. As a lender who has funded well over 1,000 deals, we’ve come to find that most issues new investors have during their first fix and flip are contractor related. Delays, underestimation of costs, and generally unprofessional behavior are the most common source of headaches for new investors. To avoid this common problem, do your due diligence and follow a few of these proven guidelines when choosing the general contractor that’s right for your project.
- Use your real estate investing network, or personal referrals to gather recommendations of reputable contractors they may have used previously on similar projects.
- Ask questions and request references and examples from each contractor. Be sure you are aware of their knowledge, expertise, and experience. Go see their work in person by visiting at least two of their projects in your area.
- Don’t settle – get bids from a few contractors. This will give you a better opportunity for success by finding the right fit, as well as giving you a better understanding of what your project will cost. Be sure to ask for an itemized scope of work.
Not Staging the Home
When you are getting your property ready for sale, every detail counts. First things first, clean up and declutter your space. Home buyers are picky, especially buyers who are looking for a turn key property. Hire a professional company to stage your home. Yes, this service increases your out of pocket expenses by anywhere from hundreds to thousands, but, like anything else related to your deal, staging the home is an investment. A professionally staged home is easier for potential buyers to relate to because it is clean and staged in such a way that allows buyers to envision themselves living there.
The National Association of Realtors conducted a survey and found that 96% of realtors believe that staging the property has a positive impact on the buyer’s perception of the home. Their studies prove that staged homes sell up to 2.5 times quicker and for about 17% more than non-staged homes. A properly staged home will help you turn the highest profit on your property, without having it sit on the market for months at a time! Remember, the longer your home sits on the market, the more soft costs you accumulate.
Holding Onto the Property for Too Long
While renovations do take time, time costs money. Each month you will be responsible for paying for things like homeowner’s insurance, taxes, utility bills, and maintenance such as landscaping and snow removal. What this essentially means is, for each month you hold onto your property, the less profit you will make.
Avoid this by creating a timeline. Make a detailed schedule with your general contractor, outlining when each phase of the project will be completed. Once the renovations begin, check in frequently to make sure everything is moving along as planned.
With that in mind, don’t let unrealistic expectations about the property’s sale price cause you to turn down viable offers. Every offer you turn down in the hope of getting more money means more time your property spends on the market – and more soft costs you’ll accumulate.
The quicker you finish and flip your property, the quicker you’re able to re-invest your money into the next deal!
Contributor's Bio: Eric Krattenstein’s extensive marketing experience began at a boutique marketing agency where he developed dozens of successful innovative marketing strategies for brands ranging from startups to Fortune 500s. Prior to joining Asset Based Lending early in 2016, Eric served as the US Chief Marketing Officer for a European enterprise software company where he spearheaded the company’s expansion into the United States and Canadian markets. In his current role, Eric leads ABL’s Sales and Marketing team that helps upwards of 40 to 50 real estate investors close hard money loans each month.
Photo credit: Taduuda Photography