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3 Pitfalls to Avoid When Playing in the Real Estate Game

HGTV makes flipping houses look easy, but the truth might be a little more complicated. Don’t be fooled by what you see on TV.  It’s it’s actually really hard to make a substantial amount of money as an individual flipping homes. Even if you sell a flipped house for more than what you purchased it for, in the process of the flip, you’ll need to pay for any materials you use for DIY projects as well as labor and material costs for professionals (like plumbers, electricians, carpenters, landscapers, etc.). You also have to think about taxes, interest on any loans you take out to purchase the house and real estate agents. You never know how a flip will go, so there’s always the risk that you won’t turn a profit at all — and might actually end up sinking money into a house.

Here are some basic but key areas that one must avoid when engaging in any real estate related transaction:

Pitfall Number 1: Don’t Overpay!

The whole point in investing is to find properties that are undervalued. How does one find out what is undervalued versus overvalued? Without getting into technical details, the bottom line is you need experience. Yes much like shopping for anything else, real estate is essentially one of the highest ticket items in the shopping center of life. It’s advisable to stick with one market, perhaps the one closest to you in proximity as a starting off point. Through your experience and asking the right questions, you will eventually have a feel for the pulse of the market you are looking after, and of course identify what is considered a good buy.

Pitfall Number 2: Know the Market

Yes, you are actually going to have to do more work! This part is really common sense though, but executing it where the beauty and the payoff comes in. How do you make money in real estate? The most basic way is to buy low and sell high. So from the first step, you have identified general trends in the value of homes, and are pretty good at spotting undervalued homes. Assuming you acquire that home, you may want to profit from it by selling it off to someone else for a higher price. How can you do this? Well there are many ways. For one, most markets appreciate in value over time so if you want a longer term approach that will work. Making upgrades to the property will automatically raise the price of the home as well. Think in terms of what the market wants, not what you personally want. You aren’t the one buying it; you are trying to sell it to someone else for a higher price than you bought it.

Pitfall Number 3: Know Your Budget

It may be a fine philosophy to go through life on a whim, but real estate is serious business, and thus diligent financial planning and budgeting is critical to your success. Don’t worry you don’t need to be a finance geek, however you need to be disciplined and know your budget from the onset, or you may be finding you are learning that you need to make certain renovations or upgrades, and didn’t anticipate it going over to a certain cost. Think ahead as to what is needed before actually going forth with investing in real estate.

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