Common Denver Real Estate Investing Mistakes to Avoid
With the current uptick in home improvement shows on television it’s easy to be tricked into thinking it’s a walk in a park; the reality is Denver real estate investing can be difficult if you are inexperienced. There are a number of issues and decisions that can pop up without warning that you should make yourself aware of before you take the leap into the real estate investing world. Here are a few of those issues that you should think through, understand and prepare for ahead of time.
Do Your Math
Sit down and figure out how much money you stand to make from the property, ensuring that you’ll be making more than the expenses and upkeep. A negative cash flow will mean a measly investment return on your money. Over 80 percent of real estate investors fail to complete this step and end up regretting it down the road. For the investors that actually look at the numbers some tend to use unrealistic numbers which can also come back to cause regret. This is something you want to avoid; remain realistic with yourself. Be careful not to overestimate rental income, underestimate vacancy, or underestimate your expenses for operating the property; each of these can lead you to have low or negative returns on your investment.
Prepare for Renovations
One of the bigger mistakes that Denver real estate investors make is not preparing properly for renovations and their costs. Many will listen to their inspector and real estate agent about what needs done and then grossly underestimate how much money it will actually take to do the work only to be surprised when they see the estimates for work that add up to three times what was expected. You should always do your homework and be very conservative in your budget estimates.
Along those same lines you should also be realistic about how long the renovations will take. A “new to the game” investor will often underestimate how long a renovation is going to take. If you want a clearer view of how long a renovation can actually take talk to experienced investors to get a realistic expectation of the time you’re going to spend on renovations. Don’t underestimate how much money it’s going to take to renovate or to maintain your investment. Your expenses will vary over time and you should always prepare, as well as over-prepare, for those costs. Whether its renovations, service, contracts, or capital items, whatever it may be will likely be higher than you initially think.
Understand: Real Estate and Stocks are VERY Different
Many people think that owning Denver real estate will be just like owning stocks and bonds. Real estate investments come with challenges and issues such as clogged toilets, tenants, neighbors, etc., so keep these in mind before you jump down the rabbit hole of owning a property. This is not an asset in which you’ll be able to quickly look at a bank account statement every few months and see a profit; it will take work on your part in order to turn a profit. Owning a rental property is a business that will take up your time and will be stressful, but if done right it can be profitable for you. You must understand this before you decide to buy.
Reality TV isn’t always Reality
One thing that reality TV leaves out when showing you the flipping process is that it isn’t always a simple process and most will lose money if they aren’t careful. After all, not everything you see on television or the internet is real. You should do your research into what the flipping of a home will actually entail for you.
You should go into this project knowing that it is not a low risk investment; there are a great number of issues that can come with owning real estate. Your best defenses against these risks are to be educated, diligent and realistic about the job you are taking on.
There are a number of mistakes to be made in Denver real estate investing but with diligent planning, research and a solid understanding of how real estate investment works you’ll be on the road to a happy investment future. Experience is your best teacher when it comes to this process, so enter with an open mind and be ready to learn from everything that you encounter along the way. Do your best to avoid the large, expensive mistake and know if this is the right career avenue for you before you get involved in the business.