Real estate investing in San Diego can be very profitable, but it can also be a downright punishment in your pocketbook if you make mistakes and do not get it right.
I’ve been in the business for 29 years and when I started, I made all kinds of mistakes. I’ve also been involved in over 500 different sales transactions, and I’ve had the pleasure of managing 30 to 40 agents over the last 20 years. On top of that, I have had some great clients and I’ve learned a lot from them.
With all of this experience, there are six mistakes that are especially common and potentially costly. Let’s talk about how to avoid them.
Failure to Learn the Basics of Real Estate Investing
You need to know the fundamentals and how to determine fair market value and accurate rental projections. You need to know the cost of ownership and where you should buy.
In the San Diego coastal zone, for example, things can vary dramatically. You can be on one street and it can be a fabulous investment. Yet two blocks over, it can be terrible. The market can fluctuate a lot by geography.
You also must be familiar with terms like GRM (gross rent multiplier) and how to calculate that. Or cap-rate, the capitalization rate.
For example, say you want to buy an apartment complex and you’re in the central San Diego coastal zone. A four-cap could be great, but if you are in the same area and looking at a retail space or office building, the four-cap is not so great.
You may even want to learn terms like internal rate return and how to calculate that. The best thing you can do is slow down and be patient. Educate yourself and learn.
Approaching Real Estate Investing with a Stock Market Mentality
You cannot get in and get out of real estate investing on a whim. It takes time. Real estate investments are not liquid.
Again - it takes time. Expect to be in the game for a while.
Mentality of Getting Rich Quick
This is a big fantasy, and the only person who can do this is the guy on late night television talking about his investment plan. The real estate game takes skill, time, and dedication. You are going to get incremental advances on your investment, which is the best way to build long term wealth.
Not Having a Plan
You have to understand what you want. You need to know things like how many properties you want to buy? And will those properties be single family homes or multi-family properties? Would you consider a great deal on a condo? How long do you plan to own these investments? You need a written plan and need to know when you will get in and when you will get out.
Investing Blind Without a Mentor or Team
Think of the best of the best. Whether it is Tiger Woods or Roger Federer, they all had a coach. You want to surround yourself with a strong team. If you want to have a partner, maybe get a partner who complements your weaknesses. Have a good CPA or financial planner. Always have a good broker or agent as well. Who you surround yourself with matters a great deal. Do not do this in a bubble all on your own.
Not Understanding the Renovation Cost
This mostly happens to newer investors. Let’s say for example you are a newer investor and you get halfway through the deal and all of a sudden, you have blown your budget. As a new investor, you are most likely to panic and then look for ways to cut costs. When you start doing that, it can be a vicious spiral, and it’s not the way to treat this business. This goes back to having a good team around you. You want to work with that team to nail down the renovation costs right up front. You cannot afford to make a mistake and disregard it.
These are my top six mistakes that you do not want to make as a real estate investor in San Diego. If you have any questions about any of them or anything additional you’d like to discuss, please feel free to contact us here at Penny Realty.
