Real estate is one of the most preferred assets by investors. However, taking this financial path is not easy. Just as there are countless opportunities in this space, the list of potential risks and challenges are endless too.
In this article, experienced accountants and advisors from Lear & Pannepacker, LLP share some of the most common mistakes in real estate investing and how to avoid them.
1. Impulsive buying
One of the greatest mistakes of those trying to dip their toes in real estate investing is that they buy first and then think later.
For instance, you’re interested in investing in real estate and you stumbled across a newly renovated property around your neighborhood that is offered at an amazing price. Of course, you can’t resist the deal and snagged it for yourself.
While this seems like a good start, what would be better is if you actually took time to sit down with your dedicated CPA to develop an investment plan. Only after careful evaluation will you be able to tell if it is indeed a sound investment.
Your CPA should help you determine if it works with your budget and financial goals. Also, a well-connected accountant can help you find the perfect piece of property that matches your needs.
So the next time you find yourself buying a property impulsively, remind yourself to slow down and think it through. Remember, a sweet deal can quickly turn sour without proper planning and strategy.
2. Paying too much
So you’ve found a property that you really, really like. Everything’s great except for the hefty price tag attached to it. Because you love the property, you buy it anyway even though you know deep down that it is too expensive for its actual value.
Instead of justifying your actions, you should consult with your accountant or advisor first. Somewhere out there, there might be a better deal. The key thing to remember is that you should not move too fast and spend a fortune, crossing your fingers that it will turn out to be a worthwhile investment.
As much as you can, you should also invest your time in finding an amazing deal for a reasonable price.
3. Miscalculating your cash flow
If you have multiple transactions going on involving buying, selling, or renting out properties, you might find yourself confused with how much money is actually coming in and out.
Also, when you buy a property, there may be some repairs or improvements that you need to make. If you’re into buying and selling properties, some might sit idly on the market for a while before they get sold or rented. Meanwhile, you are paying all the taxes, insurance, advertising costs, mortgage, and other expenses.
So the best way to go about this is to ask your accountant to run the numbers so you have an accurate picture of your cash flow. The insights that you will gain from your accountant will help you make the right decisions now and in the future.
4. Having a single exit strategy
Always remember that this path is never a straight one, and it’s recommended to have multiple exit strategies in place. Instead of just selling or renting out your properties to tenants, you can also explore lease options, 1031 exchanges, seller financing, FSBO sales, and many other choices available to you.
The future is uncertain, and so is the real estate market. With this, it pays to have several end games to stay prepared.
5. Keeping your volume too limited
We know how intimidating real estate investing is, especially if you’re a newbie. However, experienced real estate investors would agree that you don’t necessarily have to cross all your Ts and dot your Is before you delve into a new one.
With the right strategy and planning, you can have multiple deals going on simultaneously. The beauty of this approach is that it ensures one bad investment won’t be the death knell for your investment journey.
If you’re not feeling confident about this, you might want to work closely with your accountant or advisor. These professionals can help you weed the bad deals out, and provide a crystal clear view of the broader market. So go on, find a CPA whom you can trust to help you make intelligent choices.
Whether you’re new to real estate investing or you’ve had some experience before, it pays to know the common pitfalls and how to avoid them.
While you can always do your own research, a seasoned accountant and advisor with extensive experience in real estate can provide significant value and increase your chances of success. At Lear & Pannepacker, LLP, we go beyond accounting and can help you make informed decisions.
Get in touch with us today to learn more about how we can help you improve your financial position!