Fatal Mistakes You Can Make as a Young Real Estate Investor
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Fatal Mistakes You Can Make as a Young Real Estate Investor

Here are six fatal mistakes you can make as a young real estate investor.

Fatal Mistakes You Can Make as a Young Real Estate Investor

Real estate presents exciting investment opportunities for young investors. According to Mynd's 2022 Consumer Insights Report, 68% of millennials and Gen Z investors feel that investing in real estate is wise.

However, if you've never made significant investments, you may face some hiccups along the way. Here are six fatal mistakes you can make as a young real estate investor.

1. Skipping the Planning Stage

Before investing in real estate, you must develop a comprehensive plan. The first fatal mistake of buying an investment property is not clearly understanding how you'll generate income or returns.

You might feel extra excited to purchase a house when the real estate market is trending upward. However, it's best to take a step back and consider what'll happen if the housing market crashes or you make a poor judgment.

Your real estate investment plan should address the type of home you're interested in and its intended use. For example, do you want to buy a single-family house, townhome or condo? Will it serve as a vacation home or office?

Once you've determined what sort of real estate investment you're making, you must figure out your budget, financing options and whether a home fits into the plan.

2. Investing Without Help

Investing in real estate by yourself is not a good idea. To ensure you've made the best choice and a smooth transaction, you'll want to utilize as many resources as possible.

Investing in a property without expert guidance and feedback could lead to a terrible mistake. That's how many timeshare companies lock you into agreements. Timeshare companies often dismiss owners' requests to terminate their contracts because it's harder to resell the units without acquiring maintenance fees. Unfortunately, this leads to a financial burden for timeshare investors.

Young real estate investors should reach out to local agents, home inspectors, contractors, attorneys and home insurance specialists. These professionals will have the skills and knowledge to uncover anything that could pose a problem later on.

3. Failing to Research

You wouldn't make other large purchases, such as a car or a new laptop, without researching different models. Why would you skip out on researching an investment property? From the neighborhood to potential repair costs, it's critical to answer the following questions:

  • Is the property located in a decent area, near major construction or high crime?
  • Is the property vulnerable to natural disasters — flooding, high winds, heavy snowfall or wildfires?
  • Is there foundation or permit issues?
  • What will you have to replace in the home, such as appliances, the roof or the HVAC system?
  • Why is the owner selling the house, and how much did they pay for it initially?
  • How far away is the property from community amenities like the supermarket, drug store, shopping or entertainment?

Real estate apps and websites — Zillow, Realtor, Trulia, Redfin and others — are excellent resources for gathering background information on a property. Trulia even allows you to read residents' reviews about the area, such as its walkability, community, transportation and crime rates.

4. Overpaying for Property

It's natural to want to make a high offer so the seller accepts your bid. However, a young, less-experienced real estate investor may overbid on a property after growing frustrated and tired of house hunting.

Overbidding presents several problems, though. For one thing, you may end up in debt, having to dip into savings to cover the costs — and it could take years to climb out of a negative financial situation.

Secondly, you want to avoid being in a position where you must walk away from the purchase. A seller will likely keep your deposit, while you might also get sued for breach of contract.

Finally, your mortgage company could lower or deny your approval if your offer exceeds what they're willing to cover.

Your team of experts should be able to assess whether the asking price is reasonable or if your investment in a particular property isn't feasible. They'll also know what other homes are listed as and have sold for in the neighborhood.

5. Underestimating Costs

Young real estate investors often overlook the actual expense of owning a home — it's not just making a mortgage payment. They also need to factor in maintenance costs and upgrades. Other major costs could include renovations, installations or making significant repairs.

Does the investment property have a backyard? Assuming the property is a vacation home, you might need to hire a landscaping company to cut the grass every couple weeks.

Additionally, homeowners, whether living at the property full-time or renting it out, will have to account for property taxes and homeowners insurance.

You're not alone if you've failed to consider the additional real estate investment costs. A survey by Lombardo Homes found that one in four millennials underestimate the costs of buying a home listed at $150,000.

6. Ignoring Tenants' Needs

Some young real estate investors might choose to rent their investment property out when they're not using it. If that's you, you'll want to consider who your renters will be.

Are your tenants singles or couples, families with young children or students? Time spent researching properties will become even more critical — parents and college students won't feel comfortable staying in a dangerous area.

If you're investing in a vacation property, consider how close it is to major attractions or the beach.

Additionally, you'll want to ensure the home's interior has everything tenants need to live comfortably, such as upgraded appliances, enough bedrooms and bathrooms and a yard for their kids or pet to play.

However, avoid making upgrades that don't have a return on investment (ROI). It could be harder to earn back that money later for essential maintenance, such as replacing the roof.

Invest in Real Estate Wisely

Young investors are wise to diversify their portfolio with a real estate investment — it's just important to do so carefully. Common missteps can accrue much debt and cause more of a headache in securing future prosperity.

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This article has not been reviewed by Odyssey HQ and solely reflects the ideas and opinions of the creator.

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