The 10 Most Common Mistakes Denver Real Estate Investors Make
Television shows have glamorized real estate investing, but many Denver real estate investors learn the hard way that real estate investing is not as easy or as glamorous as it seems. Problems like clogged toilets, leaky roofs and other unforeseen issues take away from your bottom line as an investor. Learn from the mistakes of others, and check out the 10 most common mistakes made by Denver real estate investors.
Not Putting Pencil to Paper
The vast majority of Denver real estate investors do not take the time to put pencil to paper and sketch out the investment. You want to be sure that the rental revenue from the property will be more than all of your property expenses, and that it will leave enough to return to your bank account. A property with a negative cash flow will guarantee a small income, at best.
Not Using Conservative Figures
For the investors that do know how to pencil out a deal, there are still some mistakes that are made. Many investors have a tendency to use unrealistic numbers when they pencil out a deal. Often, investors overestimate rental income, underestimate the vacancy and the expenses associated with owning a property. When investors do not use conservative figures, they set themselves up for low or negative investment returns.
Poorly Estimating Renovation Costs
Most buyers do not have a real understanding of how much money it takes to renovate a property. Buyers will listen to their home inspector and the advice of their real estate agent and will arrive at a number. However, once these buyers start getting bids for work, they see that their initial figure is completely off-base. It’s important to do your research and to use conservative figures for your renovation estimates.
Underestimating the Time Needed for Renovations
Inexperienced Denver real estate investors work under the assumption that they can have a good renovation done in 30 or 60 days, but it often takes far longer for the work to be done. It’s best to talk to experienced investors in order to get a more realistic idea of how long renovations will actually take.
Assuming Items can Only Cost “That Much”
This is never a correct assumption. Things always cost more than expected, sometimes much, much more. Whatever expense you are considering – it will cost more than you initially think.
Treating Stocks, Bonds and Real Estate as Like Investments
A common reason that people give for wanting to invest in real estate is that they want to see a larger return on investment than stocks, bonds or their bank accounts can provide. Investing in real estate is unique and it comes with a special set of circumstances. Real estate is not like an asset that you can simply look at statements of every few months, it is a business. Owning rental properties requires a great time commitment and it can be stressful, so be sure you know what you are getting yourself into before you buy.
Assuming it’s a Turn-Key Real Estate Deal
It would be incredible to buy a property and sell it for much more money without having to do any work, but the reality is that this never happens.
Assuming Flipping Properties is the Same as Investing
Flipping houses looks so interesting on TV and it seems like something that you would be able to do. However, flipping homes is a lot of speculation and most buyers end up losing money this way.
Thinking Real Estate Investments are Low-Risk
Nothing could be farther from the truth. Real estate investments come with a plethora of risk. These risks can be mitigated by an investor with prudent behavior and due diligence, but most investors do not do that.
Believing Everything Other Investors Say
Unless you see the tax returns and credit report, you should never believe what an investor is telling you regarding how well they did on their real estate investment. It’s good to speak with experienced Denver real estate investors, but you always want to do your own homework and remember that often the things people brag about are embellished.
While these are the most common mistakes that Denver real estate investors make, there are so many more that can happen. It’s important to enter into the process with as much information as you can possibly have and be willing to learn as you go. Smart investments will show you a great return on investment, so do your research and be a wise investor to maximize your profit.