Real estate has been considered both an exciting and also leveraged investment vehicle for ages. Having survived recessions over several generations, important advantages of real estate include the ability to use a property as leverage e.g. to take out a second mortgage and use the money as the down payment for an additional property. However, investing has become quite complex over the last couple of decades, making it easy for amateur investors to make avoidable mistakes.
Here are a couple of such amateur mistakes to avoid:
1. Buying a Property for the Short Term
Real estate is well known for its long term investment benefits and has notable gains in a lot of growing cities such as Toronto. However, if your major goal for investing in real estate is to make short term gains, you might get the short end of the stick, and record losses. Consider factors like market unpredictability (the market might not move as fast as you expect it to), hidden real estate costs e.g. agent’s commission fees, closing costs such as land transfer tax, etc; these factors tend to make a short-term real estate investment unprofitable. It is usually better to have long term projections when making real estate investments.
2. Buying a Property in a Location Highly Dependent on one Business
Before buying a house, it is important for you to properly scan the neighborhood where you’d be making your purchase, and ascertain that there is a variety of businesses capable of keeping that location afloat. Why is this important?
If you buy a property in a city or neighborhood which chiefly relies on just one business, when something goes wrong with that business, you will witness a sharp drop in the value of your home as well. This is because businesses increase the value of a neighborhood and as the value of the business drops, so does the value of properties in that area. A good example would be a neighborhood that strongly depends on a specific car plant for its value and ratings. If something goes wrong with the car plant, not only will this result in a huge number of jobs lost in that neighborhood, but equally, real estate values would plunge.
3. Working with an Inexperienced Realtor
Few mistakes are as costly to the amateur real estate investor as working with an inexperienced realtor.
More than anyone else, the local realtor you choose should be able to guide you properly on which kind of properties would be best for you; and this is especially important if you have little experience in real estate or when you don’t know your neighborhood very well. The best way to navigate this challenge would be to work with local agents that have a firm grasp of the neighborhood, as they can provide you with useful bits of advice. Platforms for finding the best realtors such as Wowa in Canada are specifically engineered to help real estate investors match with the best real estate agents for them, on the basis of local experience and previous customers’ feedback. With the aid of such properly curated platforms, you get to choose a realtor out of a pool of only excellent real estate agents.
Be it in terms of your search for the perfect realtor, the location where you choose to buy your property or the duration for which you plan to hold on to the property, some costly mistakes can be avoided by the first time/amateur real estate investor. You can start investing in real estate with a relatively small amount of money but with wrong decisions, you can easily lose much more than your initial investment. Thankfully, the tips outlined in this article would help you invest like a pro!