Investing in real estate may help diversify a portfolio, open up new streams of income and provide you with a long term property to live in or rent out. However, this asset class takes plenty of work and preparation to unlock, especially compared to say stocks, which you can buy and sell with ease across a day.
Real estate is finite, and while there is passive income through renting and even selling, the upfront effort is daunting. There are no shortage of pitfalls to avoid when starting out on your real estate investment journey. Here are the key mistakes you need to watch out for.
Real estate investment benefits
Before we get to the common mistakes, it’s worth quickly going over why real estate is such a potential lucrative investment. Real estate investment allows for a steady stream of passive income in the form of rent. What’s more, real estate investments are generally less volatile than stocks or crypto. Real estate is a finite asset as well, so as supply decreases and demand goes up, prices generally increase as well.
What’s more, owned property can be leveraged to acquire more property or renovate existing spaces.
Real estate mistakes
Lack of plan
Investing in real estate requires a plan, whether you seek a house to rent out and manage on your own or put some extra money towards a REIT or crowdfunding platforms. Whatever your investment, a plan should be created involving financial goals, risk appetite and how real estate investments interact with other investments and compare to other forms of income.
Perhaps you want to make some passive income without doing any work, or perhaps you want a physical piece of property that includes a rental suite. Any path with real estate requires a plan in place of what you want to invest, what you hope to earn and what involvement you will have along the way.
No due diligence
Due diligence comprises all the research done before an investment to help you make sure that investment is a good one. It may mean conducting environmental and structure assessments, assessing a physical location, undertaking a financial audit and effectively managing accounts for present and future expenses.
Real estate due diligence is no small task, but an imperative step to take to ensure that you’re making the best choice with an investment.
Poor vision
It’s important to anticipate all the good – and all the bad – that can possibly happen with your investment. Buying up property in an area that is underdeveloped may hold value, especially, for example, if the municipal government is in the works to revitalize the area. The addy at Bay St. in Hamilton, for example, is just on the edge of a massive redevelopment that hopefully will boost property value all around.
Vision also means preparing for setbacks. Consider all the expenses and potential pitfalls that come with owning property, especially if you are going to manage it. You may have trouble finding tenants, or have trouble-making tenants of your own to deal with. Seasonal maintenance and sudden repairs can take a chunk out of your budget as well.
Timing
As the old adage goes, the best time to invest was yesterday. And while waiting too long may mean you miss out on a great opportunity, it’s also unwise to rush an investment. Now, that probably doesn’t sound like the best advice, but if you’ve a proper plan and conduct due diligence, you’ve all of the tools you need to make the right investment at the right time.
Portfolio concentration
It’s often the smart choice to diversify your portfolio, especially when one of the assets is real estate. Because real estate investments aren’t generally liquid, you can’t easily take money out to spend when needed. Stocks, on the other hand, are liquid, and you can buy and sell across a day and withdraw money as needed.
Stocks and cryptocurrency may offer higher reward more quickly than real estate, though that comes with a higher risk.
Invest with addy
addy eliminates a lot of the common mistakes beginner real estate inventors may make. addy’s team of experts conducts due diligence on General Partner and potential property so that members have all the important information available to them when deciding to make an investment.
What’s more, once invested, members don’t need to manage the property or worry about sudden expenses. All the money that goes into the property stays there, and should the property make some rental income and/or eventually be sold, members earn passive income. It’s all part of addy’s goal to make real estate accessible and affordable for all.
