5 worst real estate investing mistakes

NOT UNDERSTANDING YOUR CREATIVE FINANCE OR ADJUSTABLE-RATE LOAN

Not knowing the limits of your loan payments can cost you thousands of dollars. Interest rates are at their lowest level in decades. If a seller offers a “creative finance” deal or the lender recommends an adjustable-rate mortgage, tread carefully. Depending on the terms of the loan, your payment might increase when interest rates rise, which is expected to happen throughout this year and beyond.

IGNORING THE DOWNSIDE OF YOUR REIT INVESTMENT

Many investors enjoy the juicy dividend payments associated with investing in real estate investment companies or trusts, commonly called REITs. Yet, like all investments, the price you pay for a real estate investment trust will fluctuate. Be aware that both the dividend payment and value of your REIT investment can go up and down. As with any investment, it’s important to understand what you are buying before you invest in a REIT fund.

FORGETTING THAT INVESTING IN PROPERTY IS HIGHLY ILLIQUID

Real estate investing isn’t the same as investing in the stock market. You can buy or sell a stock or fund online in minutes, with the click of a mouse — that’s not the case when investing in real estate. Large transaction costs are common in the real estate industry. Buying and selling rental properties or buying a home involves many steps and a lot of time.

THINKING THAT FLIPPING HOUSES IS A QUICK WAY TO MAKE MONEY

Don’t believe what you see on HGTV: Flipping houses doesn’t happen in one hour. If you’re hankering to flip residential real estate, read some real estate investing books first. Buying a property at auction frequently requires an all-cash purchase, and you don’t even get to view the inside of the house. If you overpay, you won’t make a profit.

UNDERESTIMATING COSTS

Whether you’re seeking to buy rental properties, industrial real estate or even retail real estate, it’s easy for costs to get out of hand. Always overestimate — rather than underestimate — the costs. Real estate management is expensive and includes closing costs, fees, commissions, insurance, repairs, maintenance and carrying costs. When a tenant suddenly moves out, you face a month or more without rent.