How to Avoid Mistakes Investing in Real Estate

Three Parts:Learning About The PropertyAvoiding Financial MistakesThinking About The Future

Real estate can make a great investment choice. Many pieces of property and real estate can build value over time, bringing you back a nice return on your initial investment. You may also plan on renting or leasing a piece of real estate and enjoying that extra income. However, there are some dangers and common mistakes that you can make when investing in real estate. By learning what these mistakes are, you can avoid them and get the most out of your investments.

Part 1
Learning About The Property

  1. Image titled Say Goodbye to Coworkers Step 12
    Do your research. Before you invest in any real estate, you will need to fully research the property and its surroundings. Knowing all the details of the property will help you decide if it's worth the asking price, what future costs might be, and help to clarify long term investment goals. Make sure you can answer some of the following questions about any property you are thinking of investing in:[1]
    • Do you know what the area around the property is like?
    • Do you know what the future of the neighborhood might be like?
    • Is the property at risk for flood or fire damage?
    • Is the foundation of the building secure and in good shape?
    • Do you know what needs to be replaced in the home and what is new?
    • Do you know why the property is being sold?
    • What is the neighborhood like? Are there any nearby areas that might devalue the property?
  2. Image titled Have a Good Job Interview Step 9
    Ask for help. Although you may feel comfortable with making an investment, it's always a good idea to have help in finalizing your choice. Looking to other experts can help give you a better idea of how accurate your original estimates and plans were. Try talking with some of these professionals before making your investment:[2][3]
    • Talk with real estate agents to learn more about the value of the property and surrounding properties.
    • Home inspectors will alert you to any serious issues that the property might have.
    • Repair men can inform you of the expected costs that the home might need.
    • Talking with an insurance and legal representative can help you understand additional fees and processes that the property might require.
  3. Image titled Negotiate an Offer Step 6
    Learn the true worth of the property. A common mistake real estate investors make when investing in a property is overpaying. Knowing exactly what the property should be worth should be your priority when considering if the investment is a fair deal or not. Try some of the following ideas to learn if the property may be overpriced:[4]
    • Ask your real estate agent for information about surrounding and similar properties.
    • Check other properties nearby to compare costs with the property you are interested in. In particular, look at directly-comparable aspects of the properties, such as cost per square foot. You should make sure to look at homes with similar qualities as well, like the same number of bedrooms and bathrooms.[5]
    • Unless the property has something that sets it apart, the cost should be similar surrounding real estate.
    • Being in a rush can result in you overpaying. Take your time when making a serious real estate investment.

Part 2
Avoiding Financial Mistakes

  1. Image titled Innovate Step 14
    Know your limits. Before you set out to invest in any property, it's a good idea to set limits for yourself. You should decide what you are financially comfortable with and capable of investing, before beginning to look for any available properties. This can help you know where and what to look for, as well as prevent you from going over your budget and incurring a bigger financial burden than you are capable of taking on.[6]
    • Find a total amount that you are comfortable with.
    • Do not go beyond this amount, even if the property seems appealing.
    • Leave room for adjustments, inflation, or property taxes rising.
  2. Image titled Develop Critical Thinking Skills Step 18
    Stay objective. When looking for real estate to invest in, you may become emotionally attached to a specific piece of property or building. While this can be an enjoyable aspect of looking for your new investment, it can also be a trap. Becoming emotionally invested in your financial investment can cause you to overlook problems that the property might have, overpay for it, or ignore the likelihood of poor returns if you want to sell it later on. Always stay objective to help you make smart and informed real estate investments.[7]
    • Avoid making investment decisions based in emotion.
    • Using your emotions to invest could cause you to make a financial error. For example, you may offer a larger down payment than you can actually afford.
  3. Image titled Write a Grant Proposal Step 18
    Take your time. You may feel that a property needs to be invested in quickly in order to get the most return from that investment. You might also feel that someone else might invest before you get the chance. However, rushing into any real estate investment can be a real danger in the long term. If you haven't considered every detail about the property, the deal, the financing, and the future of your investment, wait until you have done so before finalizing.[8]
  4. Image titled File an Extension for Taxes Step 5
    Always overestimate costs. Investors may sometimes tend towards underestimating the costs of a certain property. This can make the bottom line seem more appealing. However, underestimating costs can put you at greater financial risk when faced with the unexpected reality of your actual expenses. Always overestimate your costs when planning on investing in real estate to help you avoid any surprises later on.[9]
    • For example, you might want to overestimate your monthly payment on the mortgage. This can give you a sense of how comfortably you can make a payment, even if it should be higher than you expected.
    • Costs of renovations or improvements should be overestimated as well. This can give you some financial padding if a repair turns out to cost more than expected. Try adding 10 percent to your budget for unexpected expenses.[10]

Part 3
Thinking About The Future

  1. Image titled Market a Product Step 19
    Think about the future of the property. Be realistic about your plans for the property and always plan for the long term. Investing in real estate is not a good way to “get rich quick”. You will want to find property that is located in stable areas, allowing you to count on the future value of your investment. Always think about the long term future when investing in real estate.[11]
    • You'll need funding to maintain it until it's occupied or sold. This will require you to pay utilities, insurance, association fees, and property taxes in the interim. Figure out a worst-case scenario for when the home will be cost and estimate your expenses from there. For example, try using six months.[12]
  2. Image titled Choose the Right Divorce Lawyer Step 18
    Don't ignore hidden costs. Although you may already have the upfront costs of the home and other financial information, you may be missing some hidden costs. Owning property will require you to maintain or improve it, costing you even more than the purchasing price alone. Always be aware of additional costs over time and factor those into your final decision.[13]
    • Appliances may need repair or replacement.
    • New paint or decorations will cost additional money.
    • Serious repairs might be needed. These may include repairs on the foundation, roof, HVAC system, or electrical system. Remember to use a qualified inspector so that you can more easily identify these problems.
    • If your property sits empty, you may end up losing money to maintenance costs, taxes, and interest on loans.
    • You may need to hire someone to mow the lawn or otherwise perform maintenance outdoors.
  3. Image titled Think Like a Graphic Designer Step 11
    Have back-up plans. Whatever you have planned for the property you are investing in, it can be a good idea to have back up plans. Knowing how to resell the property in a variety of ways can help you avoid holding onto it for too long and losing more of your investment than necessary. Always create a few different exit-strategies to allow you clear routes to maximum returns on your investment.[14]
    • You might want to simply fix the house up and sell it.
    • However, if that fails, you might try leasing it out.
    • If you can't lease the house, you might try renting it. Renting involves a month-to-month contract, rather than a guarantee period time as in a lease.[15]
    • If everything else fails, you must know when it's time to sell it, avoiding further losses. Remember that this is a last resort, as the home might go for a much lower price than you originally hoped for.


  • Understand the true value of a property to avoid overpaying.
  • Ask for professional help when judging a property's value.
  • Don't neglect hidden costs, such as maintenance or repair bills.
  • Real estate investments are long term investments. Think about the future of your property and if it is likely to increase in value.
  • Don't rush into investing in any real estate.
  • Have exit-strategies in place for your investment to avoid unnecessary financial losses.

Sources and Citations

Show more... (12)

Article Info

Categories: Real Estate