Real estate horror stories aren’t uncommon. People get in over their heads and end up in financial ruin. And while bad luck can happen to anyone, these situations are rarely the result of bad luck. They’re a result of bad planning and bad decision making. Early in my real estate investing career I made a few of these mistakes, but the key is that I learned from them. And now I’m sharing what I learned so that you don’t have to make the same mistakes.
Whether you’re investing in a home for your family or an income property (or both) make sure you follow these real estate tips.
Your house is the most expensive thing you’ll ever buy so the most important thing to consider is the financial aspect. Spend time crunching the numbers and be realistic about your spending habits. It’s amazing how often people lie to themselves about what they spend. Most people calculate their housing budget based on the monthly carrying cost, so if you spend $500 every month on entertainment and meals out, make sure you consider that when budgeting – unless you’re prepared to make major lifestyle changes in order to buy your house. Your budget should reflect your life, not consume your life. But either way, if you’re not honest it will be a struggle to make ends meet. And under no circumstances should you get caught in abiding war. You’re only cheating yourself if you go over budget.
Looking at houses you can’t afford can only lead to disappointment – and possibly financial ruin. If you’ve been approved for $400,000, tell your real estate agent that’s your maximum budget and don’t waiver. Also, keep in mind that you don’t have to go that high. People get stuck thinking that just because they’ve been approved they must spend that much. This isn’t the case. If the amount you’re approved for compromises the rest of your lifestyle look for something lower.
There’s a lot of talk about people going too high and getting caught in bidding wars, but there’s another way that people can end up paying too much – it’s because they’re embarrassed to make a low offer. It’s a funny but prevalent attitude. Are you really willing to give away thousands of dollars you don’t have to out of fear of embarrassment? There’s absolutely no shame in starting low and you could get yourself a great deal if the circumstances are right. Someone once told me that if I wasn’t embarrassed by my offer, I had offered too much. That has stuck with me over the years and I’ve gotten some great deals because of it.
The real estate market is tough these days, and in some markets people are forgoing home inspections in order to make their offer more appealing. I can’t stress enough what a mistake this is. Home inspections give you peace of mind should everything check out, or give you a bargaining chip if there are problems. It also clearly maps out where you’ll likely need to invest money into your home over the next 5-10 years, which is vital for budgeting and planning.
If the home inspection proves to be scary, or if you find you’ve gotten into something you can’t handle, don’t be afraid to walk away. Buying a house is an emotional roller coaster and it’s really important to keep a level head and not get caught up in the emotion. Even if you’ve put some money into the inspections and other fees, it’s better to get out early and take the loss than get stuck in something you can’t handle. It’s okay to fall in love with a house and then lose it. There are plenty of other houses out there. You’ll find a property that works for you, just be patient!
Photo courtesy of HGTV/Income Property.