While it’s certainly possible to make steady money through smart real estate investing, it’s also possible to lose cash quickly if you don’t follow best practices. The business requires good timing and a bit of luck, but longer-term success hinges upon understanding all of the details that come together to close successful deals. Here’s five things you might be doing that are holding back your real estate investing:
1. Neglecting research.
Research about a topic or industry goes hand in hand with business success. Whether you’re selling apples or software, you should understand the current market conditions and the overall supply and demand. Without this context, your venture will likely fail as you won’t know the right pricing and tactics to succeed. Real estate investors that dive into buying and selling without doing their research are very likely going to lose money on every deal.
You simply can’t ignore good data, so be sure you conduct a significant amount of data on the front end before diving into a deal. Research the market trends, check the area’s schools, and find what types of properties are returning the most income or profit. For example, perhaps you were looking at a duplex in one part of town, but the research is pointing to single family homes in an “up and coming” area near a new office park. Research pays off.
2. Ignoring social media.
Real estate investors in 2017 should not avoid social media sites, as these channels provide them with a source of leads and a platform for showcasing their expertise. Instagram, for example is a great site for real estate since it’s visually based, making it ideal for showcasing a remodeled home or the features of a land investment.
You need a one-on-one social media strategy, meaning actual interactions with people, not just broadcasted posts about “5 tips to improve curb appeal.” While sharing content is great, you want to also reach out personally to your followers. Perhaps they have a lead on a building that’s coming up for sale, or need to use your services with a short sale. You can also simply offer advice if that’s what the person really needs. Every positive interaction can be amplified on social media, especially if you offer yourself as an expert, not just someone looking for potential sales.
3. Avoiding budgets and expenses.
Your success as an investor will depend on your profit margins. While a simple statement, too many real estate investors do not properly account for all of their expenses and do not know the ways to reduce expenses to raise margins. Make sure you account for repairs, down payments, and holding costs as part of your balance sheet. If you are a “flipper” than you should account for every material expense and your time involved in each project to be sure you’re making the most money out of every hour. Precise accounting of every expense will also benefit you come tax time.
4. Not generating cash flow.
Real estate investors should closely follow profit margins on sales and closely keep track of cash in and out-flows. For example, if you purchase a rental property then you want to have your best practices in place that will help you to market the property and get top dollar for the monthly rent. Cash flow is what helps you to move into bigger and more profitable deals and gives you the necessary cushion in case something goes wrong. Some investors dive into good deals but do not properly look at the big picture. For example, this good investment might tie up too much capital and result in negative cash flows that just aren’t sustainable. You want to take educated risks, but always look to improve cash flow.
5. Not knowing the best locations.
The best real estate investors understand how to match a property to the needs of the community. Perhaps a part of town has a revitalized school that is attracting families. You could look at the school’s boundary part and target single family homes that are within walking distance to the school. Get specific on how you look at “location” beyond “near the beach” or “central” and think about how the location matches with certain types of properties and buyers.
Real estate is a business, and many business leaders will tell you that success often comes from avoiding big mistakes. Success in real estate means putting in serious work, and not ignoring the details. Those investors that conduct careful research, explore new marketing channels, and keep a keen eye on profit and loss numbers will be the ones with repeatable long-term success.