Making mistakes in real estate — or any business — happens to us all. It’s often part of the learning process. However, there is one costly, financial mistake you want to avoid.
We have seen this mistake quickly end careers in property investing.
What is the Biggest Financial Mistake to Avoid in Real Estate?
Starting too big. Whether it’s a massive house flipping project or a property that costs too much, we have seen new property investors fail because they simply started too big.
When you begin in property investing, don’t make your first home rehab project a $650,000 investment. Instead, look for a $150,000 home that needs minimal repairs and can easily be fixed and flipped.
There is simply too much at risk when you take on a large renovation project or expensive property investment. You’re likely depleting your cash flow and opportunity for leveraging funds on another deal, while at the same time increasing your risks of something going wrong. Simply put, the larger the project, the higher the risk of failure — especially for those new to property investing.
2 Reasons Large Home Rehab Projects Go Wrong
1. Complex job sequencing and scheduling. The more you have to renovate, the more difficult it is to schedule contractors and subcontractors and maintain an efficient rehab timeline. Job scheduling and sequencing are extremely important when flipping a house your profit margin is directly tied to getting the house back on the market. Each day you hold onto a property is costing you something, whether it’s fees, taxes or paying contractors.
2. Longer timelines. A home with extensive repairs will likely take a longer timeframe to fix and flip. Also, the more expensive the home, the longer it typically takes to sell. As a new property investor, you want to realize your return quickly and be in a position to leverage funds for another investment opportunity. You don’t want to be stuck waiting and missing opportunities because your property hasn’t yet sold.
Investing in real estate is a business venture that requires quickness, efficiency and expert guidance.
Catalyst Funding is an experienced hard money lender that provides lending for single-family residences, 2-4 unit residences, townhomes and condos in a variety of situations, including fix and flip, foreclosures, trustee sales, auctioned properties, outdated properties, neglected properties, permit issues, home inspection issues, vandalized properties, abandoned properties, fire and water damage.
For more information, contact Catalyst Funding in Houston online or give us a call at 832.648.3626.