2 Major Mistakes Real Estate Investors Are Making Today
The real estate market may be ripe for flipping houses, with great profits to be made for savvy investors, but many are making horrific mistakes with stiff financial consequences.
So where are real estate investors going wrong in this market and what alternatives are available for boosting profits and income?
Mistake #1: Overpricing
This is a pitfall which many property owners, not just professional investors are falling into. Everyone from those wholesaling REOs, to rehabbers and those still holding unwanted properties from the recent boom are all committing this costly offense.
Perhaps the media and its portrayal of how great the real estate recovery is may be partly to blame, but while the market is improving and demand for homes is growing, overpricing is merely a mission in self-sabotage.
Many are under the misconception that even if they are overpricing, buyers will just make them lower offers. What they don’t understand is that agents won’t often even bring up these listings to their clients. They are instantly dismissed on the web with the assumption that sellers are too far from reality to be reasonable to work with and every day that the home goes unsold it becomes less attractive and less likely to be found by any potential buyers looking in the area.
Worse, the effect of overpriced properties hanging on the market, in some neighborhoods, drags down the community’s appeal and perception of value by skewing the numbers and making it appear that homes simply aren’t selling or in demand. This devalues specific properties being held as well as any others an investor is buying in the immediate area.
That isn’t even the worst of it. As the home hangs on the market, it requires daily holding costs, further investment to maintain it in an appealing condition, more marketing money and time and, perhaps worst of all, daily liability that can crush an investor’s financials.
Don’t believe it; wait until some local kids break in, get hurt and sue you, a squatter moves in and burns the place down, a hurricane comes through or the city condemns the place.
Perhaps it is wiser to get in, out and paid fast?
Mistake #2: Over Improving
Think the above is bad? That doesn’t even compare to those real estate investors who are over-improving properties. Driven by rehabbing seen on reality TV shows, many are trying their hands at flipping houses without investing in a system or the right education.
The result is that they really have no idea what improvements they should be making from a business stand point. Fixing up and flipping homes can be very profitable, even if it is a lot more work than just wholesaling REOs. However, while some home improvements can make a positive difference, many won’t ever help owners to get the money they put in back, even if they do make the home look prettier.
Even worse, some naïve investors are making ‘improvements’ which devalue their investment properties, throwing away the cash they are putting in and taking money out of the equity and future sales value.
A Smarter Solution
Now compare the above to strictly sticking to wholesaling properties, whether REOs or not. Wholesaling means buying low and selling low quickly for fast profits with negligible amounts of risk. It means no need to putting in more cash to clean up, no risk from holding and no waiting months in the hopes of a pay day.
Why would you want to do anything else?
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