Being a real estate investor doesn’t come without problems. There are some common issues that everyone will sooner or later face.
Every profession comes with its own set of problems. The same goes for real estate investing. While this is a business that can help you earn a fortune, this doesn’t come over night. There are some issues every real estate investor will face in a certain moment. The best way to succeed in anything is to be prepared, which is why we have decided to prepare this list with three common problems every real investor faces at least once during their career. When you know what troubles are coming your way, you can make a battle plan. Let’s get started!
Lack of Experience
Everyone needs to start from the beginning. Inexperience isn’t something that you can’t overcome, but you need to have a good understanding of what you should be doing. Otherwise, you can end losing money instead of profiting. The worst thing you can do is to think you are sure to succeed because there is guaranteed money in real estate investing. While the industry can reward you, if you don’t know what you’re doing you can end up losing more than gaining. For example, if you plan on flipping houses, you may end up spending too much on repairs. In the end, even when you resell the house, you may end up not profiting at all. And if you intended your house to be a rental property, but it’s in an unattractive location, you may end up not getting as high rent as you planned – or worse, you may not be able to find tenants at all!
Another bad situation lack of experience can get you into is falling for those scam real estate seminars that you see all over the internet. These allegedly free seminars are advertised as being able to help you get rich by learning all tips and tricks of real estate investing. However, these free events are just a scam and a promotion for a bigger, paid seminar. Not only are these seminars costly, but you may even be asked to pay some more money to receive additional trainings. If you’re going to invest your money into something, better wait a bit more and invest in a good property. In the end, there are quite many free books a real estate investor can learn a lot from. Save your money for more important things.
Too Much Risk
Real estate investing is risky, and if you’re too afraid for that, you shouldn’t be in it. However, this doesn’t mean you should go overboard and take on too much risk. If you end up in too big debt, chances are you are more endangered in case of a crisis. This happened to many AirBnB and rental investors during the COVID-19 pandemic. These investors ended without profit, as the pandemic halted travels and rental requests. This lead to many of them not being able to pay their mortgage. While investors who owned a property or two ended up fine, those that had ten or more properties ended up in a trouble. While real estate market is more illiquid than most, it can still be impacted by certain catastrophes, and 2020 was the real proof of that.
Not every real estate investor will have the cash to fund the property. Sometimes, they’ll have to find finances, and this can pose an issue. Real estate investors typically pay a higher interest rate and have to pay a larger down payment if they take up a mortgage loan. Don’t expect to get a down payment lower than 20%! This isn’t the same as buying a home for your personal use. Because of such conditions, many investors will opt to borrow from a hard money lender, especially if they can’t get a loan from the bank. Keep in mind that these loans are typically even more expensive than average mortgages. Not to mention they are shorter lasting and you’ll probably have to repay them in just two years. This is perfectly fine if you manage to flip your house right after you’ve bought it. However, if you don’t find the right buyer soon enough, you may be in trouble.
As you’ve already probably realized, no business is without its issues. Still, if you’ve decided to become a real estate investor, this shouldn’t stop you from succeeding. You have to know the obstacles on time, so you’ll know how to combat them. If you’re prepared on time, there are less chances you’ll make a grave mistake that can set you in debt, or even in some legal troubles. The conclusion should be not to trust any free deals that seem too good to be true, to plan in advance and to not risk too much. Of course, you need to think your finances through, as well. If you have planned everything out and familiarized yourself with the local housing market, you are set for success!