pour a lot of money into the property putting in premium features like marble countertops, custom closets, high-end stainless-steel appliances, or exotic hardwood floors, you’re going to have to recover those costs when you sell or rent. But if the market won’t bear those costs, you’ll have to take a loss. Remember, when you renovate, it’s rarely a good idea to make the home as nice as you possibly can. Good enough is almost always better than great. 6. NOT KEEPING ENOUGH CASH ON HAND If you’re going to be a landlord long term, make sure you’re putting a good percentage of your rents away to use for maintenance and repairs. Experts estimate that a property will require about 1% of its value in maintenance each year. So, if your property is worth $200,000, you should plan on spending at least $2,000 a year on maintenance. This could very well increase steeply, depending on who you’re renting to. Some tenants can be hard on a property, which will translate to more repairs—2%, 3%, or even 5% a year. Putting cash reserves away for maintenance means you won’t have to put a new water heater or an exterminator bill on your credit card. •
who won’t disappear for days or weeks on end, and who won’t gouge you on material markups. It might take a while to find a dependable, trustworthy contractor, but the search is worth it. A good contractor is an investor’s best friend.
include everything from property taxes to insurance premiums to utilities to HOA fees. These are costs that come out of the owner’s pocket every day they own the property—and they can add up fast. If your property doesn’t resell quickly because you unknowingly priced it too high, didn’t do appropriate renovations for the market, or an inflated purchase price forced you to set the sale price sky high, those carrying costs can quickly eat up all your profits. In real estate investment, time is money! 5. YOUR RENOVATIONS AREN’T APPROPRIATE FOR THE MARKET Another mistake many investors who are just starting out tend to make is to over-renovate their new property. It’s exciting to buy and rehab a home, but don’t go overboard. If you
4. YOUR TIMELINE IS TOO OPTIMISTIC
Despite recent economic turmoil, we’re still in a pretty strong seller’s market, especially when it comes to urban areas. That means most properties will sell quickly, many of them for above the asking price. But there are always exceptions. If your house flip languishes on the market for too long, your deal could go from a net gain to a net loss in a matter of weeks. Many novice investors fail to realize that just owning a property costs you money. These expenses are called “carrying costs,” and they
Luke Babich is the co-founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers, and investors make
smarter financial decisions. A licensed real estate agent in Missouri, his research and insights have been featured on BiggerPockets, Inman, the LA Times, and other media outlets. Babich has a bachelor’s degree with honors in political science from Stanford University.
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