Avoid These 7 Mistakes When Investing in Ohio Real Estate Wednesday, May 10, 2017
Investing in Ohio real estate is an excellent way to grow your portfolio and make a handsome profit. Alas, for those new to the game, it can also prove to be a daunting experience. The learning curve is steep, stressful, and risky; newbies may not have extra money lying around in the event of a costly error. Even experienced Columbus realtors and investors make bad decisions occasionally.
We’ve seen a lot of blunders over the years. Want to avoid the most common slip-ups and save yourself time and money? The Robert Weiler Company team has compiled a list of seven mistakes people make when investing in commercial property.
1.) Thinking that investing in Ohio real estate is an easy way to make money
Armed with popular investment strategy books and fresh out of an inspiring seminar, many novice investors in land for sale are pumped up and ready to dive into their first venture. These investors are expecting buckets of money to start pouring in soon after making the purchase; however, investing in properties isn’t a way to get rich quick. You need to be intelligent and willing to take risks. You must put in a lot of hard work, research, and time to build a lucrative portfolio. Don’t expect your first venture to be successful – chances are it won’t. Go into it with the expectation that you’ll inevitably slip up. It takes experience and wisdom to learn from your mistakes and become successful in this business.
2.) Poor planning
Some people spot a good deal, make a purchase, and then form a plan for it afterward. This is a terrible idea. Instead, decide what you’re looking for and outline your plan, then choose the property that fits your needs. Pick your ideal property type and consider locations, capital growth rates, rental returns, and tax benefits. Determine your desired ROI and ensure that all the deals you make will deliver – but don’t make this your sole determining factor. Contrary to popular belief, ROE (return on equity) is a much better indicator of how well you’re going to make out. Choose investments that you understand so you don’t find yourself in over your head. Have your Columbus real estate broker explain all the nuances. And always, always have a plan in place with at least three exit strategies in case you want out of a deal later on.
3.) Not doing the research
You may be eager to push a deal through, overwhelmed by information, or merely blinded by ignorance. However, doing little to no research or less than thorough Ohio property search before closing a deal will undoubtedly end up being a costly mistake. Making a good investment means finding out everything you can about a property before you buy. Study the neighborhood, the building, market values, appreciation, and demographics. Determine if there are any problems with the property, pest issues, foundation issues, or repairs needed. Check zoning, building code certifications, local ordinances, building permits, and current lease provisions.
Ask the owners why they have their farm for sale, hunting land for sale, warehouse space, apartment building for sale, medical office space, or other commercial property for sale on the Ohio market. Are they closing because of a poor business plan or moving because they’re expanding? Is it a newly empty commercial space or has it been sitting for a while? Find out how much they bought it for and when. Keep meticulous records and cross-check everything to ensure you’re getting the full story.
Also, look at similar businesses in the area. Find out if there is market saturation in that location; what’s already there and what’s slated for development. What is transportation like – how much foot and car traffic is there? Is the area dangerous? If you’re planning to lease out your Ohio real estate property, you want it to remain attractive over the long-term. As such, you must ensure that the space and location meet your prospective tenants’ needs and requirements.
4.) Obtaining sub-par financing
Combinations of personal recourse, balloon payments, adjustable interest rates, high interest rates, overleveraging, or high monthly payments can spell trouble. For beginners, a regular mortgage might be a safer option with less risk involved. As you acquire more buildings or purchase additional farmland for sale, use your equity to obtain a commercial loan or line of credit.
When choosing between financing options, consider those that minimize your risk. If you’re planning to hang onto the property for the long haul, you may want to amortize the loan over a longer period; this can allow for a bigger cash flow. If you want to sell in a few years or are willing to gamble on the market, you have options; though a short-term loan with a lower interest rate may be preferable. Adjustable interest rates, balloon payments, or overleveraging yourself is a huge risk because you’re depending on the market. Will you be able to make the payments if the market shifts out of your favor or rates increase? Shop around with different lenders to get a full picture of your available options and make an informed decision.
5.) Letting emotions get in the way
Some people just fall in love with a property for sale or are taken in by a flashy exterior; the problem arises when they decide to ignore the fact that it’s a poor investment. They find themselves overpaying and ultimately end up struggling while they wait for the property to appreciate. Others get carried away making upgrades to a property that won’t increase its value enough to justify the expense. Success in Ohio real estate will only happen if you leave emotions and impulse out of it. You’ll be in hot water if you spend money on unnecessary upgrades, only to discover that you don’t have the cash flow for unexpected costs. If you find yourself letting your emotions take the wheel, base your decisions purely on the numbers; you can also ask a trusted Columbus realtor for their cold, hard input.
6.) Underestimating expenses
Investors often fail to consider all possible expenses involved with owning an Ohio commercial property; this is a mistake that can be devastating to your bottom line. Your monthly loan payment is not the only thing you need to consider. Don’t forget to factor in property taxes, necessary repairs and maintenance, insurance, rental vacancies, property management fees, and future capital expenses – such as a new roof or new windows. Once you’ve made all your calculations, give yourself a buffer by doubling the estimated time and costs involved and see if you can still swing the deal. It’s essential that you have cash reserved for any surprises that may crop up; enough to cover at least a few months of mortgage payments.
7.) Not getting help from professionals
The do-it-yourself trend has convinced many people that they can, and should, do everything themselves. This is one of the biggest mistakes you can make, even if you’ve gotten away with it successfully before. Don’t be overconfident and overextend yourself. Would you rather spend your time fixing toilets and fussing over contracts; or securing new Ohio realty investments and raking in piles of cash? Yeah, we thought so.
At the very least, you should have an Ohio real estate agent, contractor, real estate attorney, insurance agent, property inspector, and a good commercial appraisal management company on your team. It’s a rookie mistake to save money by taking shortcuts; it can end up costing you much more in the long run.
Avoid Mistakes; Call on the Experts
At The Robert Weiler Company, our trusted team of experienced commercial real estate professionals can save you time, money, and migraines. You’ll feel confident as we expertly guide you around many of these common pitfalls. With almost 80 years in the industry, we’ve built a strong reputation for excellence in commercial real estate, specifically in the areas of property appraisal, brokerage, development, and property management. Pick up the phone today and dial 614-221-4286 to consult with us on your next Ohio real estate investment.