You’ve seen the television shows on “house-flipping.” I don’t see as many shows on this subject, probably because of the recession. The recession has scared away a lot of potential real-estate investors. However, there are ways of making money on real estate during a recession.
The biggest problem that a real estate investor faces during a recession is that the real estate investor has less room to make mistakes. Every dollar counts and, it’s harder to get the dollar back that you lost. Before the recession, the “house-flippers” on television were able to make stupid mistakes with their money and end up with a profit from “flipping” the house. Today, you can’t afford to make those kinds of mistakes. So, if you are serious about investing money in real estate, I’ll show you some common mistakes that a lot of beginning real estate investors make so you can avoid them and make money.
The first mistake a lot of beginning real estate investors make is that they are unrealistic. Skilled real estate investors make a modest return on their money. Investing in real estate is not a “get rich quick” scheme. If you want to make a million dollars from an investment of one dollar, buy a lottery ticket. If you invest in real estate with the idea that you will get rich quick, you will make all kinds of bad decisions that will cost you a lot of money.
The second mistake a lot of beginning real estate investors make is that they are not financially secure before investing in real estate. In order to invest in real estate, you have to have money, or, at the very least, access to credit. If you are “flipping” properties, you need money to buy the property, you need money to improve the property in order to sell it at a profit, and, you need money to pay the property taxes if the property doesn’t sell right away. If you are an aspiring landlord, you need money to buy the property, you need money to improve the property if so needed, you need money to maintain and make needed repairs to the property, and, you need money to pay property taxes. In a recession, if you need to borrow money to invest in real estate, you are not investing, you are gambling. Keep this in mind.
The third mistake a lot of beginning real estate investors make is something I call “do-yourselfitis”. This mistake is usually related to the second mistake, because, a lot of wanna-be investors don’t have enough money to pay professionals to do the needed repairs to the property. There’s nothing wrong with a real estate investor that chooses to do simple home improvement tasks. Doing simple things, like painting, will save the real estate investor money. More complex tasks, however, are best left to the professionals. Hiring a professional to do the work saves time. In the real estate business, time is money. If you are “flipping” properties, the longer it takes you to rehabilitate a property, the more money it will cost you in the end. This also applies to real estate investors who insist on marketing their own properties. You don’t need a realtor to sell a house, but, if you don’t hire a realtor, it may take a lot longer for you to sell the property. If you are using borrowed money to invest in real estate, sitting on a property for a long time is a guaranteed disaster, particularly in a recession.
The last mistake that I would like to talk about is not doing research on the market you plan to invest in. If you are going to buy real estate in a certain area, the most important thing you should know is how much the homes sell for. This tells you how much money you can invest in a property before you run the chance of losing money. Look at what the average home in the area sells for. If you have to sell the property for more money than the average home in the area to make money, you’re taking a very big chance. In a recession, this might turn into a very expensive mistake. People who aspire to become landlords should pay attention to the going rate for rental properties in the area that they plan to invest, so they have a realistic idea of what they can charge for rent.
It is possible to make money in real estate, but, you have to do your homework and be objective. You want to make money. That is your goal. Don’t lose sight of that.