3 mistakes new investors make when buying their first investment property.

We all make mistakes especially when it is the first time we are doing something. These mistakes usually don’t have long term consequences. Well, we hope not at least. Most mistakes can be over come. However, when it comes to investing in real estate if you can prevent these mistakes you will be way better off.

Rents Increasing:

One of the biggest things we have seen in the last few years is all investors have been banking on rents going up. And for the most part they have. Now I am not sure if we are at a point where this is no longer going to continue or not. I doubt it. It just might not be at the same pace it has been.

But new investors must be smart about how they are analyzing their rents. Also, one of the mistakes I have made in the past on multi family properties is the amount of money I would have to spend to be able to increase the rents on an apartment.

If you have a tenant that is paying $100 bucks less than what current market rent is. You can try to increase their rent and maybe they go with it. But if they don’t and they decide to move out. Then you have to spend money on flipping that apartment and getting it rent ready.

These are real costs. You may spend $3,000 dollars to get that extra $100 a month. You can see trading $3,000 to get $1,200 isn’t a winning proposition if you have to do it a lot.

My point though here is do the homework. Determine what the rent prices are in the area you looking to purchase and make sure you are realistic about what you are going to be able to charge in rent.

Not including all of the expenses for the investment.

There is an old saying in business that says what ever you projected it to cost, add on another 50%. The reason they say this is because it always cost more than originally thought. Why this happens isn’t always clear. But I have a few thoughts on why.

I think by nature when considering an investment we are naturally excited about it. This could be an investment of your own money in a real estate deal or an investment inside a company on some new project or something. The excitement of the project or deal forces mistakes in analyzing the deal. There are just inherent biases.

When it comes to real estate our emotions get tied up in the deal and we want it to work. So we may not include all of the expenses for the deal.

I know for me when I bought my first multi family property, I didn’t account for lawn maintenance in the deal. Now it wasn’t a deal breaker, but it was definitely an added expense. Another thing I didn’t add in was snow removal. I never really thought about it. Is it rare? Sure it is rare where we own. However, it is something that you should include in your analyzing of a deal.

Be sure to think through all of the potential expenses. i would encourage you to connect with someone who has been doing it for a while and ask them to help you. You can always reach out to me.

Thinking short term when you should be thinking long term.

One of the things I have learned about investing and it is more true today than it was ten years ago. Is that it is a long term game. It isn’t a get rich quick game.

Ten years ago when I was buying a deal. It was pretty easy as soon as I took ownership of the property. My mortgage was usually about half of what I was getting in rent each month. The expenses were fairly low and when I needed work done, it was fairly inexpensive to get it done.

Nowadays, the chances of you buying a deal where you are getting double your mortgage payment in rent are few and far in-between. Expenses are much higher because labor is more expensive as well as the materials. So everything just costs more.

What I have learned in the last five years is that the first year is just rocky. You have to be prepared for it. You have to first get the deal. Then you have to get the deal ready to rent. Then once it is ready to rent, you have to find a tenant. Then once your tenant is in there you have to see it through for a year.

And looking at my portfolio I can see it as clear as day that after five years you are making solid money usually on the deal. It is also pretty easy to manage. And if you wait ten years you will usually see the value of your investment double. So if you sold it, you could make double your money.

Real estate investing is a long term game. Don’t every think otherwise. If you aren’t in it for the long haul, then I would encourage you to consider other investments.

As you know I love investing into real estate. I wouldn’t have the net worth I have today without it. However, there are some things that I look back on now and I am thankful I learned them and I want to share with others so they don’t make the same mistakes.

To your success and your future.

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