10 Real Estate Strategies That Could Backfire Big Time

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If you’ve ever wondered how to invest in real estate, you’ve learned by now that real estate can be a gold mine or a trap door, depending on how you play. Some strategies guarantee quick wins or steady returns, others lead to frustration, financial loss or even legal trouble. There’s high stakes here and one misstep can snowball into a costly mistake. It’s a lot like trying to bake a soufflé: It can collapse spectacularly even with one wrong move.

Before getting into the dos and the don’ts of real estate, it’s worth noting that the lure of shortcuts and promises of ‘guaranteed’ success is very strong. But every success story has a shadow, and by knowing the pitfalls you can make sure your investment dreams stay alive and your brain and your nest egg remain intact.

Using Only Online Valuation Tools

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Automated tools like Zillow’s Zestimate are far from perfect. These don’t consider specific property features, neighborhood oddities, or the market. Without a real estate professional, if you decide to trust these tools, it’s like trusting a weather app to plan your wedding without leaving the house, it might work, but it’s a gamble.

Trying to Time the Market

Waiting and seeing can mean watching prices go through the roof while you sit on the sidelines. You won’t be able to predict the exact highs and lows of day trading real estate. Warren Buffett once said that the best investment you can make is in the property you understand. Timing will cost you the opportunity altogether if you overthink it.

Over-Leveraging Yourself

It might seem like a quick way to build wealth by taking on huge amounts of debt to fund a property purchase but it can get out of control very quickly. If your interest rates rise or rental income dips, you’ll now be juggling payments you can’t afford. You may have to sell, and often at a loss, just to keep your head above water.

Neglecting the Power of Curb Appeal

An unkempt lawn or peeling paint can drive buyers or tenants away. You don’t have to spend a fortune to enhance curb appeal—plant some flowers, fix a broken mailbox, etc. Research shows that homes with nice exterior also sell 7 percent more on average. A little sprucing up helps a lot.

Build Too Much for the Neighborhood

It’s so easy to go all out with the high end finishes and add ons, but if your property is now the most expensive property on your street, you may have trouble getting your money back. Think of it this way: A chandelier added to a barn will not make the barn a palace, it will only confuse the cows.

Rental Screening Process Is Skipping

In renting out a property, it can seem easier to grab the first person that’s got cash in hand. However, failing to conduct tenant screening means you don’t know if you’ll have a tenant who pays on time or one who damages your property or gets you into legal trouble. Yes, a thorough background and credit check will take time but it can save you a world of headaches later.

Overpricing a Property

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The problem is many sellers think they’ve got a gold mine on their hands so they price it high, but buyers are scared off before they even make it through the door. If homes are overpriced, they simply sit on the market and that becomes a stigma. The result of this is that buyers start to wonder if there’s something wrong with the property or the seller is just inflexible. Zillow research shows that homes listed above market value take longer to sell and often sell for less than comparable price homes.

Skipping the Home Inspection

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Wouldn’t you look under the hood of a car before buying it? But some investors skip home inspections to keep things moving. When the roof leaks or termites make your woodwork their buffet, you shouldn’t be surprised to discover that you bought a ‘money pit’. For a few hundred dollars, a home inspection can save you a five figure repair bill you weren’t aware of.

Ignoring Local Market Trends

Buying a beachfront property sounds dreamy until you find out that the area is oversaturated with vacation rentals. If you are not keeping an eye on local trends, investment can make or break. If real estate investors don’t study local markets, they tend to see slower returns or even losses. If you knew your market, it’s like knowing the tide schedule — it can keep you from being swept away.

Not Considering Legal and Tax Implications

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From not disclosing known problems in a property to getting your tax codes wrong, failing to comply with legal and tax requirements can get you into trouble. The majority of lawsuits in real estate can be avoided if people do their homework upfront. Getting advice from experts early can save you a lot of money down the road.

Disclaimer: This list is solely the author’s opinion based on research and publicly available information.