The real estate sector is full of opportunities, such as the acquisition of properties like commercial buildings or rental apartments.
It is best to be properly prepared and well informed to guarantee a return on your investment in the years following the transaction. But most importantly, there are newbie mistakes to be avoided! Here are just a few.
Not Knowing the Market
Each city, sector or type of building has its own unique characteristics. When it comes to making a final choice, in-depth research regarding the property’s resale value, the neighbourhood’s popularity, the tenant profile, upcoming development in the area, etc., will be important. You will then have all the information you need to offer an appropriate price and to determine if your purchase will be profitable.
Choosing a Long-Distance Property
Unless you will never need to visit the property in question, acquiring real estate far from your own place of residence may be a bad decision for you. Time is money: focus your search near or around where you live.
Not Submitting an Offer That Is to Your Advantage
It’s true that the current state of the residential real estate market has resulted in buyers submitting higher than usual purchase offers. However, if you feel that the competition around your desired property is not so strong, why not try offering a lower amount? You’ve got nothing to lose, and, if the owner accepts, you will be able to earn quite a profit! Moreover, you can always increase your offer if the initial one is declined.
Carry Out Unprofitable Renovations
Renovations must generate a return. Take for example an apartment building. Spending a lot of money on spectacular exterior finishes and landscaping may be great for the eyes, but less so for the wallet. You are better off upgrading the units' kitchens or bathrooms.
Following Your Preferences
Investing in a house, condo or commercial or income building is not like buying a personal residence. Needs and preferences must be set aside to be able to evaluate the property objectively. It will then be possible to clearly determine its investment potential.
Wanting to Wear Many Hats
To reduce expenses, novice investors sometimes err by wanting to handle everything on their own. But this can impact the acquisition’s profitability. Bringing in certain professionals, whether in the areas of renovation, management or finance, will save you money in the long run, even if their fees seem high at first. Focus on what you do best and delegate!
Underestimating Future Expenses
Similar to a house purchase, real estate investment comes with an array of foreseeable expenses, such as taxes, maintenance and insurance, and some unanticipated ones like renovations. These expenditures are proportional to the building’s size. Underestimating their cost or simply hoping that nothing bad happens is not wise. Instead, set up an emergency savings account to ensure that your acquisition makes money for you and does not end up draining your pocket.
Paying Too Much for a Building
The whole point here is to quickly generate a return on your investment. There is consequently nothing to gain if the building’s initial cost is so high that the income it generates doesn’t cover the expenses. It is always best to proceed with caution; for example, in the case of an apartment building, budget your rental revenue based on a scenario where it is partially unoccupied. This way you won’t be under so much pressure and won’t have to panic should a unit be empty or if you have a bad tenant.
The world of real estate can be complex, but also enriching in more ways than one! If you want tips or support on finding the right investment property for you, contact a RE/MAX broker today!