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10 Costly Mistakes to Avoid as a New Real Estate Investor In regards to fixer upper properties, many new investors end up paying far too much. They often have no idea how much the repairs/upgrades will cost so when they pay over the asking price and then fork out for the work, they’re often left disappointed when the extra cash injection doesn’t lift the property’s value by the same proportion. That’s why it’s so important to be mindful of the ceiling price on the property when investing in a property. It’s always crucial to know the recent sales in the area and work out what’s realistic for your investment objectives (whether it’s for a quick fix and flip or long term rental investment). New investors buying for the fix and flip property should avoid paying more than their intended investment price because they may put themselves at grave risk of negative equity if property prices fall (unless they plan on holding it for the long term). Whenever you’re looking to buy a property as an investor (especially a new investor), it’s a standard practice to ignore the asking price. You should instead look at recent sold prices within the past few months. One of the best ways to estimate the value of a property is to find out what similar properties in the area recently sold for, known as “comps,” or “comparable sales.” Looking at what other properties in the neighborhood are listed for helps as well. But you usually get the most accurate picture of local property values by looking at the price someone actually paid. “Ideally, you’ll be able to find at least three comparable properties that have sold recently in the same neighborhood.” 14 10 Costly Mistakes to Avoid as a New Real Estate Investor
10 Costly Mistakes to Avoid as a New Real Estate Investor What can you do if you're compelled to overpay for a property? There are two potential antidotes: 1) Know why you're overpaying; and 2) Make sure the overpayment factors into your game plan based on how long you'll keep the property. If you know you'll have to pay more upfront (due to competing investors, etc.), but have a game plan to quickly recoup your losses, overpaying for a property could make sense. Say you’ve overpaid for a property that has several extra acres that can be divided off and sold at a substantial gain. In fact, you believe the acreage sale could fund an entire remodel for the property. It’s probably a good case of overpaying (provided you’ve gathered the proper planning and zoning research information upfront.) Overpaying for a property should not be isolated from other facts of the purchase. For example, overpaying for a property in a stable, appreciating neighborhood may not be as dire as spending too much on a house in a deteriorating subdivision or on the edge of a warehouse district. 15 10 Costly Mistakes to Avoid as a New Real Estate Investor
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