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  • Writer's pictureMay

3 Mistakes People Make When Purchasing Investment Property

These are the common property investment mistakes that real estate investors make. Read on to avoid making the same mistakes!

Purchasing an investment property is a great way to develop and grow your wealth. There are a lot of benefits of investing in real estate, but there are some costly mistakes an investor can make. Through much trial and error, these are the common mistakes people make when buying investment property and how you can avoid them:

Mistake #1: Not factoring in CapEx into investment property calculation

You might be wondering....what is "capex"? Capex is short for capital expenditures and it's money that goes toward purchasing, maintaining or improving fixed assets. Why is this necessary? When you're purchasing a home (house, condo, townhome, etc), there are big things that can break: roof, water heater, pipes and so much more. To maintain and keep the home in working condition, you need to build a capex fund to keep for big repairs in the future. Investors typically ignore this in their calculation and when they have a major repair, it eats into their profits and, sometimes, into their own pocket. By incorporating this into your real estate analysis upfront, you can see if a property is profitable even if you put some money aside into Capex and that way, when the big repair comes, you don't have to eat into your existing profits and you can pull from the Capex fund you built.

Mistake #2: Not doing enough research on the property

One common property investment mistake is not doing enough research into the property they want to purchase. What does that mean? Location is a great example. Where the property is located matters a lot - it will determine how much demand there is in your property (which will impact vacancy rates) and the potential for the property to appreciate in value and in rent. Location is much more than the city the property is in, it even matters which neighborhood the property is located in. Is it centrally located? Are there public transit options nearby? Is there a lot of activity? What part of the street is the property located? Is there a lot of noise near there or is it pretty quiet? Think about who would rent from the property as well - based on the location, who would be your tenant?