5 Critical Mistakes for Real Estate Investors

Real estate investment can be a very lucrative choice. However, while investing in real estate may sound like an easy way to get passive income, there are a lot of complicated factors that go into it that you may or may not be expecting. Home builders, as well as anyone else looking to invest in real estate, need to avoid some critical mistakes that can damage or completely destroy their finances.

1. Miscalculating Expenses vs. Revenue

When buying a real estate property, you need to do a careful calculation of expected expenses vs. expected revenue from that property. This includes but is not limited to: taxes, homeowners association fees, insurance costs, rent you can charge, how much you expect the property's value to increase over time, and more. The worse you miscalculate expenses and revenue, the more vulnerable you become to losing money on an investment. This extends beyond the initial purchase of the property and to any renovations you might wish to make on the property at a later date.

2. Trying To Do Everything Yourself

Managing and upkeeping a number of properties is simply not something someone can do alone. You are bound to have things you have no clue how to do or are not good at doing. You will need to build a team or network of quality professionals to help you manage your properties, including a real estate agent, maintenance contractors, accountants, and more. Trying to do everything yourself is bound to cause financial loss sooner or later, when a job isn't done well or you spread yourself so thin you aren't focusing on expanding your business by buying new properties.

3. Getting Bad Financing

Getting financing that has high or adjustable interest rates, for example, is a mistake that could really hurt or even destroy your business. The housing market has recovered greatly from the crash in 2007-2008, and interest rates remain low, but this can be a problem if you buy and the rates rise. An important step is looking into some of the best credit repair services to fix any lingering bad credit that follows you around.To make matters worse, because of a credit market that's far more hesitant to give out loans than it was in 2006, it can be difficult to secure a loan at all for your investment property. This means you might be tempted to go with not-as-good financing options, but that would be a mistake. There's always an element of risk in financing a real estate investment, but bad financing can hurt you severely, perhaps even put you out of business, down the road.

4. Using Bad Contractors

Contractors are critical to real estate maintenance, as you will need someone to mow the grass, replace the roofs or fix everyday malfunctions. Never just go for the cheapest choice - always take your time to get quotes, recommendations and do some digging before hiring a contractor to work on your property. You can always find a contractor that builds quality homes. A utah home builder has recently received high marks for their quality of homes, and all you need to do is look for a similar company in your local area. A bad job by a contractor can drain your finances right away as you try and fix the mistake, or deal a severe blow later when a major problem happens due to a poor quality job. Always make sure contractors carry full liability and worker's compensation insurance as well - if an accident were to happen and the contractor wasn't covered, insurance companies might sue you to try and get their money back.

5. Not Understanding Property Markets

Not doing your homework ahead of time is a recipe for financial disaster of your real estate investments. Without understanding current and past trends and how the market works, you're much more likely to make some big missteps and blunders, and continue to make them. Property markets also change very quickly, meaning that continued learning is always a must for real estate investors. Not keeping up-to-date on the real estate markets where you own property could mean that the rents you charge are now too high or too low, or you could make a bad purchasing decision without knowing it.

Everyone makes mistakes - the key is to not make big ones that can lead you to financial ruin. Unfortunately, real estate investment is fraught with pitfalls that can easily snare you and drain your finances, so try and avoid these five critical mistakes that could cost you big.