No one ever says real estate investment is easy, but the rise of HGTV shows like Flip or Flop may make it seem that way. The truth is most businesses fail within 10 years and about half fail within the first year. This also applies to real estate investment, which doesn’t even require much capital to get started. If you’re interested in investing in one or more Irvine, California, homes for sale, you should know some of the most common reasons real estate investors fail.
Poor Financial Analysis
While numbers don’t lie, it can be very easy to run the wrong numbers on a property. Thorough analysis and research are two of the most crucial elements of success in real estate. For example, don’t assume a home that rents for $1,200 per month with a mortgage of $800 with insurance and taxes included will bring in a net cash flow of $400 per month. There are hidden expenses to consider, such as vacancies, evictions, repairs, property maintenance, and professional property management.
Running Out of Capital
Getting started in real estate investment doesn’t always require a lot of capital, but it can be easy to run out of money to finance a project or cover an important expense. Running out of money can happen due to over-leveraging or buying too many properties too quickly, usually with too much debt and at very low margins. It can also be the result of poor financial planning and failing to leave a large enough buffer to cover expenses.
Making Emotional Decisions
Sometimes investors fail or abandon their business because they make emotional decisions rather than relying on research and the numbers. If you tend to make offers based on what your gut tells you, stop investing in marketing too soon because it hasn’t paid off yet, or jump from one idea to the next, you may be focusing too much on your feelings. Instead, do the math first and leave emotions out of business decisions.
Rather than choosing an arbitrary amount for marketing and giving up when it doesn’t work right away, set a maximum you’re willing to invest, know how much you are willing to pay per lead, understand your conversion rate, and monitor your marketing strategy to make adjustments as needed.
Treating It as a Second Job or Hobby
Successful real estate investors put in the necessary amount of time to see their work pay off. If you tell yourself you’re only going to give your idea a try for a few months to see if it works, or if it only has half your attention, you aren’t likely to see long-term success. Instead, develop a realistic business plan and set long-term and short-term goals. Be prepared to work for 12 months or longer before you have something to show for your efforts. While it may not take this long to enjoy success, it’s important to develop perseverance.
From Northpark to Shady Canyon, Irvine real estate is a popular commodity for potential investors. Whether you’re looking for a property to purchase and rent out or one to use as your primary residence, make sure to work with a trusted agent from Irvine Residential Living. To schedule an appointment, call 714-454-6304 today.