In real estate investing, the 1% rule is used to make sure a potential investment property will bring in enough income so that it will at least break even.
As someone just looking into getting started investing in real estate, you may not have any idea what we're talking about. But that's okay! You're not supposed to know everything in the beginning.
What matters is that you put the effort into learning before you actually start investing. Otherwise, you're at risk of making avoidable investing mistakes.
That's why in this post we're going to cover 3 of the biggest real estate investing mistakes beginners make so that you can avoid them.
Keep reading to learn more.
1. Not Having a Set Strategy
Before you begin investing in real estate, you need to have a set strategy you plan to follow. Without one, your decisions will be harder to make and the investments will be much riskier.
You might plan on using a long-term buy-and-hold strategy, or doing something short-term like a fix-and-flip. You might also plan to use a 1031 exchange for tax benefits. But whatever you choose, it will impact every decision you make.
Your investment strategy will help you determine what kind of property you're looking for, in what location, and at what price point. Without knowing your goals you'll be in the dark while making these decisions.
When choosing a strategy, be sure to consider how long it will take to get a return, how large that return might be, and how much active work it will take from you to get it. You should also consider what you will do if something goes wrong with the investment.
2. Focusing on Emotions Instead of Math
Most of the time, when you buy a house it is at least somewhat an emotional decision. If it's the place you're going to live and have a family in then that makes sense. However, if you're buying property as an investment, you need to focus on the math and if it makes sense as a profitable investment rather than on your emotions.
When you look at potential properties you'll have to run the numbers to see if the investment makes sense. If it doesn't, then it doesn't matter how much you love the property, you shouldn't buy it.
3. Underestimating Expenses
When you're doing that math it's crucial that you don't underestimate the many costs of owning and operating a rental property. From regular home maintenance to property taxes and potential property manager fees, it can add up quickly.
You need to be sure that all of these potential costs (or at least solid estimates for them) are factored into your math when checking to see if it'll be a profitable investment for you.
Get Started With Real Estate Investing
Real estate investing can be a great way to build wealth and passive income. Avoid making these mistakes and you'll be one step closer to a successful real estate investing career.
If you're looking to start real estate investing in Boise, Idaho, we may be the property management team for you. Contact us today to find out.