Most people think they are better than average. This phenomenon is referred to as illusory superiority. People often overestimate their own abilities and think they possess certain characteristics and traits that others lack.
Perhaps you are more intelligent than most people. After all, you now know the psychological term for this cognitive bias of superiority that can so easily trip people up in many areas of their lives. You are also learning how to avoid these five biggest renovation mistakes that many investors make.
1. Underestimating the true costs of renovations and repairs
People often think in broad terms when evaluating properties. They might get some input from the inspector and then just use a round number like $60,000 for all renovations.
When the actual bids for needed work are itemized and repairs reveal hidden defects or unanticipated costs, the bill often ends up being twice what they had in their renovation budget. Your accuracy improves over time, so err on the side of caution and don’t let how much you might like the location cloud your renovation budget estimates.
2. Thinking the value will always increase by at least the costs of renovations
Real estate is a speculative business. The market changes and some people lose money. You can minimize your risks with prudent decisions and due diligence, but there is always some risk. If you want a guarantee, put your money in a FDIC account.
3. Skipping the profitability analysis
Investors must calculate profitability before purchasing a property. Much like the stock market, there are always sellers and buyers in the real estate market. As an investor, you should be considering several possible deals at any given time. You are going to move forward with some, but you will walk away from others. The profitability analysis helps you compare deals and consider various possibilities within the same property.
4. Cutting corners on renovations
Always use the services of licensed contractors with suitable experience. Many people are tempted to cut costs by using low-grade materials and unsafe contractors. You are liable for what happens on that property before, during, and after renovations.
5. Carrying out the wrong renovations
Renovations can be a particularly enjoyable aspect of real estate investing for many people. Nevertheless, you should not renovate based on your personal tastes. Instead, you should base renovations on your target market and what will bring you the best possible return on your investment. Shopping at home improvement stores is great, but you don’t earn money indulging yourself. Be selective about what renovations you do and stick only with those that add value.
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