INTRODUCTION
Welcome to my biggest mistakes in real estate investing as a first-time real estate investor. I want to let you in on some of the things I did wrong that I think you could benefit from knowing so you don’t make the same mistakes also.
So here we go, my top mistakes I made when buying my first investment…enjoy! 😉
MISTAKE #1
IMPATIENCE
Impatience was a huge step back when I got into my first property. It was one of my biggest mistakes in real estate investing because I rushed in to buy a house too quickly. I didn’t actually stop to think….”wait can I actually afford the downpayment for this property??”
That thought didn’t cross my mind because I was just so focused on getting into my first deal that I just wanted it no matter what…
So what ended up happening?
I ended up having to put in more than I could afford to cover the downpayment and closing costs to get the deal through. Which meant asking my family for more money.
This was money I had to pay back eventually…
The problem was I couldn’t save up for another place before the money was paid back.
And so over the next two years, I would be stuck paying back this money before I could save up again.
Another reason it took so long is that the bank gave me an extra high-interest rate because I was considered a risky borrower (not enough employment history). Which meant my mortgage repayments were ABSOLUTELY HUGE for the first year.
Long story short…..Just wait an extra 6 months and save if it means saving two years of being stuck paying back bills.
Myths busted by this lesson
- “Houses go up in value, get in, buy now or you’ll lose the opportunity! “
Truth is not all houses go up at the same time and you can find great deals everywhere. I just didn’t look hard enough at the time, hence I was impatient. If you are priced out of a suburb just keep saving and set your sights lower and look at different kinds of properties in different suburbs.
So Just relax, wherever you are…It’s not a race but a really really long marathon.
If you need to wait an extra few months than expected to buy a property then do it! If you need to save a little extra more, then do it!
It’s a very long game you and I are playing and getting a little smarter and stashing cash in the bank will never hurt you in the long term.
MISTAKE #2
GET A CASH BUFFER
Would you step out of a plane without a parachute? Would you drive a car without a seatbelt? Your answer would hopefully be a no! So you probably wouldn’t invest without having some cash to spare in your bank account. Having a decent cash reserve would be ideal in case of unexpected expenses that come up with your investment, a cash buffer will be essential to take care of things like broken white goods, such as water heaters, air conditioners, dishwashers, ovens, or a kettle! Stuff like that you would need to fix pretty quickly unless you or your tenants like having icy showers.
MISTAKE #3
OVER PURCHASING
One of the things I see a little too often is buyers letting their emotions take control of their decisions. They want the biggest house they can buy. They don’t realize that they’re getting themselves into a financial rut that will soak up all their time, energy, and money. Overextending yourself on a house means you borrowing too much to cover the rest of the purchase price after your deposit. Your interest payments to the bank would be huge! And then you still have to knock some principle off the top of that as well. I don’t know about you but I don’t like running madly on a hamster wheel for the bank.
Don’t get sucked into buying a big expensive house with all the bells and whistles. Most are certainly not a good investment. Buy a sturdy established at a good price and add value! It is simple as that.
MISTAKE #4
BAD FINANCING
One of the biggest mistakes I made in real estate investing was getting good financing.
Not getting a good interest rate on your loan could mean a lot of money down the sink and all your hard work on the property is misspent. Make sure your living expenses are down and your employment status is strong. You want to show the bank you are good with your money so you will be good with theirs.
MISTAKE #5
NOT PREPARED FOR THE UNEXPECTED
One thing is for sure, shit happens. Think about all the different aspects of a house and processes that happen behind the scenes with a property. One thing is for sure, unexpected expenses and unanticipated processes will demand your attention.
Be mindful of things that might need replacing. Before buying the house, get a building and pest inspection to check the home for any structural defects or pest infestations. Check your energy and water meters too, and see if there is anything leaking anywhere, especially from your white goods like the water heater. Finding out something needs replacing is bad enough, getting a sky-high bill is just next level awful.
Try to be prepared as much as possible, being agile and flexible will help you to navigate the plethora of obstacles that stand in your way. Having a cool level head will ensure you move with flexibility and deal with things logically.
Do this effectively by having a decent cash buffer stashed away for your emergency fund. A good rule of thumb is I use 2% of the home’s value. This is a real good idea at the start when you don’t know exactly what state some of the items in your house are in.
