Row of townhouses

Avoid making a mistake with your real estate investment by studying the market, running the numbers and working with a team of professionals that can help you succeed. (Getty Images)

Real estate has always been one of the great equalizers in wealth creation in the U.S. As a tangible asset with generally low barriers to entry, people from all walks of life and income levels have succeeded in building real estate empires.

The numerous success stories coupled with the potential for lofty returns make the asset class tantalizing, but taking the plunge into real estate investing is not something to be taken lightly. Investors breaking into real estate should conduct a substantial amount of research and diligence before getting started to help safeguard against rookie mistakes.

In the modern age of information, access to a variety of resources is plentiful. The old adage that “failure is the key to success” may be avoided on a personal level by learning from the experiences of other investors to make smarter decisions going forward.

[Read: Buying or Selling Your Home? Think Like a Real Estate Investor.]

While there’s no denying that experience is a great way to learn, you can leverage a number of resources to avoid common mistakes. Here are five of the most common mistakes made by new investors and how to avoid them in your next deal.

Limiting yourself to a specific market. When it comes time to choose where to invest, your home market may feel like the safest place to start because it’s familiar, but that doesn’t necessarily mean it is the best option. Opportunity doesn’t have borders, and that should always be a consideration as you look for your next investment.

For example: It’s tough for someone living in an expensive metro area like New York or Los Angeles to find long-term rentals in their immediate area that generate strong yields, let alone get over the high barrier to entry from a price perspective. There are dozens of other markets across the country that are displaying economic stability, strong housing demand and high returns, so why eliminate those markets from contention?

Advances in technology, data and services have been a critical development in allowing investors to research and enter markets across the nation as they search for better investment opportunities.

Thanks to the institutional investors that have entered the single-family residential sector, there are now a growing number of national and regional service providers that provide resources to small investors in a way that historically didn’t exist.

Accessing these service providers across the country offers investors transparency and clarity into opportunities outside of their home markets, empowering them to transact in top-performing investment markets and feel secure in their team and decisions.

Over- or under-renovating. Understanding the level of renovations a rental property needs is key to a successful deal. Real estate investors should aim to renovate to the level of local market condition and realize that renovations can vary from neighborhood to neighborhood, even in the same city.

Regardless of the condition of the property, understanding the scope of the renovation is a bespoke analysis that requires focus. Investors may find themselves in a difficult situation when they renovate beyond what the market dictates. If all the homes in an area have tile countertops, adding granite countertops probably wouldn’t be a worthy investment as it wouldn’t cater to the typical renter or owner in that neighborhood. This could limit the return on investment by only having a marginal impact on the rental rate or sale price.

You may avoid over- or under-renovating by simply talking to your team of local professionals, including a real estate agent, property manager, contractor, etc. They are market experts and should be able to help you decide on worthy improvements.

You can also tour other houses in the area when possible or use online resources to see photos and scope out the local competition. Doing your diligence before initiating any renovation projects may boost your returns and protect you against wasting time and money on the wrong renovations.

[Read: How Investors Can Identify a Great Rental Property.]

Not understanding how debt works. Real estate investors typically use debt for two reasons:

  1. To expand their buying power. Rather than spending $100,000 of equity on a single property, financing can allow that same $100,000 to go further by spreading it out among several properties with a smaller down payment on each property.
  2. To improve returns. If an investor is able to obtain debt at a lower interest rate than the net yield of investment, the levered return of the investment is higher than if it was paid for with cash.

Both functions of leverage may be very attractive, but obtaining debt does not come without its risks, which is what novice investors should be wary of.

Less experienced investors may take on expensive debt that charges a higher interest rate than the investment yields. In that situation, you will experience negative cash flow, as the net income of the real estate investment is less than the monthly debt service. Now you’re forced to take money out of pocket to make up for this shortfall in order to keep the loan current and avoid defaulting.

The best way to avoid this scenario is to crunch the numbers of a deal and confidently know that the property will generate enough revenue to cover the loan amount. It’s also important to have a deep understanding of the costs and expenses that will be included in the operation and maintenance of the property.

Doing everything yourself. Most investors take on their first few deals as a part-time opportunity in addition to their primary profession and try to tackle the investment without any outside help. Given the lack of time available coupled with general inexperience investing, it’s not surprising how often people fail when employing this strategy.

It can be a challenge to stay on top of all the moving pieces involved in a real estate investment when it is your full-time profession, so what chance do you have if you’re only dedicating a few hours per week to a property?

Starting a real estate investment without focus or the right resources can put even the best deal in a bad position. Instead, before getting started make sure to have a clear scope of work, a strong understanding of what a property requires and someone assigned to complete each task.

Managing the project proactively rather than reactively can be a saving grace in real estate investments. It allows for you to assemble the right team who will be able to help keep your investment goals on track. Again, don’t reinvent the wheel. Leverage the experts you have at your disposal who can provide you with support.

Not saving for repairs and maintenance: The final common mistake that investors make is not having realistic expectations as far as maintenance costs and capital expenditures. Most sophisticated investors will set aside at least 2 percent of the value of the property into a reserve account on an annual basis for these potential costs.

Novices tend to set nothing aside and are in a tough situation when a major repair is needed or when replacing a critical component, as they don’t have the capital necessary to complete the work. Remember, everything in your investment has a lifespan and will need to be replaced eventually.

[See: The 25 Best Affordable Places to Live in the U.S. in 2017.]

The best place to start when taking on any type of new project is with preparation. By knowing the most common pitfalls and having a plan in place to avoid them, new investors can find success in real estate investing.

Whether flipping houses or purchasing long-term buy-and-hold rental properties, investors who do their diligence are much more likely to find repeat success. While no deal is perfect and everyone is bound to make a mistake or two, those who learn from them and set up processes to avoid making them again in the future put themselves in a position to succeed going forward.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Investability Solutions Inc., Altisource or any other Altisource business entity. The foregoing content is not intended to constitute, and in fact does not constitute, financial, investment, tax or legal advice by the author, Investability, Altisource or any other business entity. All investment decisions carry inherent risk, and no Altisource entity shall have any liability with respect to any investment decision made based on the foregoing content.


The 25 Best Places People Are Moving to in the U.S. in 2017


The 25 Best Places People Are Moving to in the U.S. in 2017

These places have the highest net migration over five years.

Fort Myers, Florida

(Getty Images)

In calculating the Best Places to Live, U.S. News factors in each metro area’s growth due to net migration over a five-year period. For the 2017 ranking, we determined net migration from 2011 to 2015 per data from the U.S. Census Bureau, the most recent complete data set at the time of our calculations. Places with the most growth might be attracting new residents thanks to a hot job market, inexpensive housing, desirable location or some other factor. Read on for the 25 metro areas (out of the 100 largest) that have grown the most.

25. Oklahoma City

25. Oklahoma City

(Getty Images)

Best Places to Live 2017 Ranking: 36
Metro Population: 1,318,408
Median Home Price: $149,646
Median Annual Salary: $44,280
Net Migration Rate, 2011 to 2015: 4.67 percent

To some coastal residents, Oklahoma’s capital may seem an unlikely place for growth, but this city has seen strong growth in population due to net migration: 4.67 percent between 2011 and 2015.

Learn more about Oklahoma City.

24. Des Moines, Iowa

24. Des Moines, Iowa

Des Moines, Iowa skyline from the summer of 2013. Taken from the Mercy Holiday Inn

(Getty Images)

Best Places to Live 2017 Ranking: 9
Metro Population: 601,187
Median Home Price: $168,629
Median Annual Salary: $47,170
Net Migration Rate, 2011 to 2015: 4.82 percent

The No. 1 Best Affordable Place to Live in the U.S. is also seeing a significant influx of people moving to the area. Des Moines grew by 4.82 percent due to net migration between 2011 and 2015.

Learn more about Des Moines.

23. Seattle

23. Seattle

High dynamic image of Seattle skyline in dramatic sunrise colors across pier-66 waterfront

(Getty Images)

Best Places to Live 2017 Ranking: 6
Metro Population: 3,614,361
Median Home Price: $359,693
Median Annual Salary: $59,060
Net Migration Rate, 2011 to 2015: 4.97 percent

Seattle has long had a reputation as a strong job market, with the likes of Microsoft, Starbucks and Amazon headquartered in the area. But it is also the ultimate hometown for many who are looking to move to the Pacific Northwest.

Learn more about Seattle.

22. Las Vegas

22. Las Vegas

Las Vegas Strip Palms in Colorful Color Grading. Las Vegas, Nevada, United States.

(Getty Images)

Best Places to Live 2017 Ranking: 78
Metro Population: 2,035,572
Median Home Price: $208,839
Median Annual Salary: $42,070
Net Migration Rate, 2011 to 2015: 4.98 percent

One of the recession's hardest-hit cities, particularly in the housing market, Las Vegas continues its upward trend with a growing job market and plenty of entertainment to attract new residents.

Learn more about Las Vegas.

21. Jacksonville, Florida

21. Jacksonville, Florida

Jacksonville, Florida, USA downtown city skyline on St. Johns River.

(Getty Images)

Best Places to Live 2017 Ranking: 45
Metro Population: 1,401,600
Median Home Price: $190,760
Median Annual Salary: $43,460
Net Migration Rate, 2011 to 2015: 5.04 percent

Sunny Florida weather, a below-average cost of living and growing business district continue to attract residents of all ages to Jacksonville, which grew more than 5 percent due to net migration between 2011 and 2015.

Learn more about Jacksonville.

20. Phoenix

20. Phoenix

Phoenix Arizona skyline framed by saguaro cactus and mountainous desert

(Getty Images)

Best Places to Live 2017 Ranking: 44
Metro Population: 4,407,915
Median Home Price: $216,454
Median Annual Salary: $46,700
Net Migration Rate, 2011 to 2015: 5.07 percent

Phoenix serves as a particularly hot destination for retirees. But the job market and ample outdoor activities continue to attract new residents of all ages. The area has grown by 5.07 percent over a five-year period.

Learn more about Phoenix.

19. Melbourne, Florida

19. Melbourne, Florida

Sunset over the Melbourne Causeway

(Getty Images)

Best Places to Live 2017 Ranking: 49
Metro Population: 553,591
Median Home Price: $163,042
Median Annual Salary: $45,470
Net Migration Rate, 2011 to 2015: 5.43 percent

Growing 5.43 percent due to net migration between 2011 and 2015, Melbourne sees particular interest from seniors – the metro area's median age is 46.6 years old.

Learn more about Melbourne.

18. Dallas-Fort Worth

18. Dallas-Fort Worth

Photo of Dallas skyline in the morning. Sunrise moment. Dusk.

(Getty Images)

Best Places to Live 2017 Ranking: 15
Metro Population: 6,833,420
Median Home Price: $210,181
Median Annual Salary: $49,030
Net Migration Rate, 2011 to 2015: 5.5 percent

The largest metro area on this list, Dallas-Fort Worth grew by 5.5 percent in a five-year period. Despite its size, Dallas-Fort Worth has a median home price of $210,181, just shy of the national median at $211,731.

Learn more about Dallas-Fort Worth.

17. Miami

17. Miami

(Getty Images)

Best Places to Live 2017 Ranking: 92
Metro Population: 5,861,000
Median Home Price: $232,449
Median Annual Salary: $45,110
Net Migration Rate, 2011 to 2015: 5.67 percent

Miami’s reputation for beautiful beaches, warm weather and a diverse population is certainly at least part of the reason people are flocking to the metro area.

Learn more about Miami.

16. Boise, Idaho

16. Boise, Idaho

Summer at a city park with clouds

(Getty Images)

Best Places to Live 2017 Ranking: 12
Metro Population: 651,402
Median Home Price: $228,567
Median Annual Salary: $42,180
Net Migration Rate, 2011 to 2015: 5.77 percent

Offering a much different landscape than Miami, Boise comes in at No. 16. Idaho's capital grew by 5.77 percent between 2011 and 2015 due to net migration alone.

Learn more about Boise.

15. Charlotte, North Carolina

15. Charlotte, North Carolina

charlotte north carolina city skyline

(Getty Images)

Best Places to Live 2017 Ranking: 14
Metro Population: 2,338,792
Median Home Price: $189,508
Median Annual Salary: $48,370
Net Migration Rate, 2011 to 2015: 6.07 percent

Growing by more than 6 percent between 2011 and 2015 from people relocating to the area, Charlotte is also a top destination in the minds of many Americans. The area ranks No. 15 for the Most Desirable Places to Live in the U.S. in 2017.

Learn more about Charlotte.

14. Tampa, Florida

14. Tampa, Florida

Historic Ybor City with bars and restaurants in Tampa, Florida, USA

(Getty Images)

Best Places to Live 2017 Ranking: 35
Metro Population: 2,888,458
Median Home Price: $170,495
Median Annual Salary: $44,510
Net Migration Rate, 2011 to 2015: 6.08 percent

The fourth of nine Florida metro areas on the list, this Gulf Coast metro area grew by 6.08 percent between 2011 and 2015 due to net migration.

Learn more about Tampa.

13. Fayetteville, Arkansas

13. Fayetteville, Arkansas

Houses in a neighborhood in Arkansas

(Getty Images)

Best Places to Live 2017 Ranking: 5
Metro Population: 493,095
Median Home Price: $182,508
Median Annual Salary: $43,570
Net Migration Rate, 2011 to 2015: 6.09 percent

It’s the smallest of the 25 fastest-growing metro areas, but Fayetteville is seeing residents rapidly moving to the area.

Learn more about Fayetteville.

12. Nashville, Tennessee

12. Nashville, Tennessee

Nashville written on a building of the historical district.More images from Nashville in the lightbox:

(Getty Images)

Best Places to Live 2017 Ranking: 13
Metro Population: 1,761,848
Median Home Price: $200,590
Median Annual Salary: $44,700
Net Migration Rate, 2011 to 2015: 6.1 percent

About 500 miles east in neighboring Tennessee, Nashville comes in at No. 12, having grown slightly more than Fayetteville between 2011 and 2015 at 6.1 percent due to net migration.

Learn more about Nashville.

11. Denver

11. Denver

Sunrise over Denver Colorado's skyline as seen from City Park.

(Getty Images)

Best Places to Live 2017 Ranking: 2
Metro Population: 2,703,972
Median Home Price: $314,021
Median Annual Salary: $54,450
Net Migration Rate, 2011 to 2015: 6.31 percent

Growing more than 6.3 percent due to net migration between 2011 and 2015, Denver continues to grow at a rapid pace, thanks to both its flourishing job market and high desirability among U.S. residents for its countless outdoor opportunities with the Rocky Mountains just a short drive away.

Learn more about Denver.

10. Raleigh and Durham, North Carolina

10. Raleigh and Durham, North Carolina

Downtown Raleigh Twilight, North Carolina

(Getty Images)

Best Places to Live 2017 Ranking: 7
Metro Population: 1,750,865
Median Home Price: $219,466
Median Annual Salary: $51,150
Net Migration Rate, 2011 to 2015: 6.42 percent

Home to major universities – the University of North Carolina–Chapel Hill, Duke University and North Carolina State University – former students in the Raleigh and Durham area are choosing to lay down permanent roots, while others are flocking to the metro region for the job opportunities the schools and other locally based corporations offer.

Learn more about Raleigh and Durham.

9. Lakeland, Florida

9. Lakeland, Florida

A typical winter scene on Lake Hollingsworth in Lakeland, Florida

(Getty Images)

Best Places to Live 2017 Ranking: 64
Metro Population: 626,676
Median Home Price: $148,000
Median Annual Salary: $39,030
Net Migration Rate, 2011 to 2015: 6.52 percent

Located in the center of Florida’s peninsula, Lakeland is showing strong growth that mirrors the state's coastal metro areas featured on the list. Lakeland grew by 6.52 percent from 2011 to 2015 due to net migration alone.

Learn more about Lakeland.

8. San Antonio

8. San Antonio

San Antonio Texas skyline cityscape aerial panorama

(Getty Images)

Best Places to Live 2017 Ranking: 23
Metro Population: 2,286,702
Median Home Price: $178,408
Median Annual Salary: $43,740
Net Migration Rate, 2011 to 2015: 6.63 percent

The second of four Texas metro areas on the list, San Antonio has experienced significant growth due to net migration: 6.63 percent between 2011 and 2015.

Learn more about San Antonio.

7. Houston

7. Houston

Downtown Houston at nighttime

(Getty Images)

Best Places to Live 2017 Ranking: 20
Metro Population: 6,346,653
Median Home Price: $197,628
Median Annual Salary: $51,830
Net Migration Rate, 2011 to 2015: 6.84 percent

A close second to Dallas-Fort Worth for the largest metro area population on the list, Houston grew 6.84 percent in a five-year period due to net migration. Houston homes also maintain a low median price at just $197,628.

Learn more about Houston.

6. Daytona Beach, Florida

6. Daytona Beach, Florida

(Getty Images)

Best Places to Live 2017 Ranking: 82
Metro Population: 604,502
Median Home Price: $164,069
Median Annual Salary: $36,980
Net Migration Rate, 2011 to 2015: 7.09 percent

At No. 6, Daytona Beach’s growth from net migration between 2011 and 2015 breaks 7 percent. The coastal metro area attracts plenty of tourists to NASCAR races and its beaches, but plenty of these visitors also appear happy enough to make the place their next home.

Learn more about Daytona Beach.

5. Charleston, South Carolina

5. Charleston, South Carolina

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(Getty Images)

Best Places to Live 2017 Ranking: 27
Metro Population: 712,232
Median Home Price: $222,979
Median Annual Salary: $43,560
Net Migration Rate, 2011 to 2015: 7.88 percent

It’s a relatively small metro area, but Charleston is growing quickly – by 7.88 percent due to net migration over five years. Ranking No. 9 on the Most Desirable Places to Live in the U.S. list, people are clearly acting on their plans to live in the historic coastal area.

Learn more about Charleston.

4. Orlando, Florida

4. Orlando, Florida

Sunset on the Boardwalk - Disneyworld

(Getty Images)

Best Places to Live 2017 Ranking: 40
Metro Population: 2,277,816
Median Home Price: $187,948
Median Annual Salary: $41,460
Net Migration Rate, 2011 to 2015: 8.59 percent

The home of Disney World and the Wizarding World of Harry Potter doesn’t just attract people hoping to see their favorite fictional characters up close, it also brings people who are planning to make it their home.

Learn more about Orlando.

3. Austin, Texas

3. Austin, Texas

Barton Springs Picnic is a area for food trucks or carts on Barton Springs Road, in Austin, Texas.

(Getty Images)

Best Places to Live 2017 Ranking: 1
Metro Population: 1,889,094
Median Home Price: $262,182
Median Annual Salary: $49,560
Net Migration Rate, 2011 to 2015: 10.45 percent

Tech companies have been opening offices in the Texas metro area, partially for its affordability relative to the likes of San Jose and San Francisco, driving many people to Austin for work. It’s a hot enough destination that the metro area grew 10.45 percent over five years due to net migration.

Learn more about Austin.

2. Sarasota, Florida

2. Sarasota, Florida

Going toward Downtown Sarasota from from the Ringling Bridge

(Getty Images)

Best Places to Live 2017 Ranking: 21
Metro Population: 735,767
Median Home Price: $224,613
Median Annual Salary: $40,600
Net Migration Rate, 2011 to 2015: 10.74 percent

With a median age of more than 50 years old, Sarasota is a particularly attractive destination for retirees, even more so than other Florida locales. Sarasota grew by 10.74 percent in a five-year period due to net migration.

Learn more about Sarasota.

1. Fort Myers, Florida

1. Fort Myers, Florida

Fort Myers Beach pier, Florida, USA.

(Getty Images)

Best Places to Live 2017 Ranking: 70
Metro Population: 663,675
Median Home Price: $198,700
Median Annual Salary: $39,950
Net Migration Rate, 2011 to 2015: 12.7 percent

Fort Myers returns as the fastest-growing metro area in the U.S. Fort Myers grew a whopping 12.7 percent between 2011 and 2015, which is much higher than its 9.36 percent growth rate due to net migration between 2010 and 2014 from the 2016 ranking.

Learn more about Fort Myers.

Read More

Tags: real estate, housing market, investing, renting, housing, home prices, profits


Dennis Cisterna is Chief Executive Officer of Investability Solutions. Investability Solutions Inc. offers a suite of solutions for the professional investment community such as valuations, acquisitions, renovations and property management. Investability Solutions is part of the Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) family of businesses. Cisterna hosts a weekly podcast available on iTunes and Stitcher called “The Investability Podcast” to help real estate investors become better informed and educated within the SFR market. Follow Investability on Twitter @investability.

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