The hot real estate market has its pros and cons. In 2021, the average home price grew by 20%. Far above the norm. For those who already own real estate, that’s great news. For those looking to buy? It could be a big opportunity as well as a big challenge.
In both 2020 and 2021, buyer’s remorse was a big problem. In fact, a Bankrate survey revealed that well over half of millennials (64% of them) who purchased real estate regretted the choice in some way or another. Considering millennials have been primer drivers in the housing market in recent years, that’s a big deal!
Real estate investors aren’t immune to buyer’s remorse, either – but it might look a little different than the regret the Average Joe may feel. For both, however, the stakes are high, and the headaches are big. Avoid buyer’s remorse in any market conditions with these essential guidelines!
6 Guidelines for Avoiding Homebuying Regrets
Rule #1 – Be Prepared for the Costs
Of the millennials who regretted their home purchases, the majority did so for financial reasons. Simply put, they weren’t prepared for the reality of the costs of homeownership. Real estate investors can fall into a similar trap. There’s the cost associated with buying the property, of course, but there are ongoing costs to consider, too. Maintenance, management, and unexpected repairs can erode your passive income. That’s not to mention potential vacancies!
Eliminating these stresses is impossible. You get what you pay for, and excellent services are well worth the investment. However, you can better prepare and avoid financial strains by:
- Running the numbers
- Developing a robust financial safety net
- Investing in markets with lower costs of living (and thus, cost of services and materials)
- Diversifying your portfolio to bolster cash flow
- Prioritizing customer service to reduce turnover
Rule #2 – Secure Lender Favor
Another major regret among pandemic-era homebuyers is interest rates. Considering interest rates have been at shocking record-setting lows, that might come as a surprise. However, with costs on the rise, that means that a smaller interest rate still adds up in a hurry. Not only that, but interest rates vary depending on your creditworthiness, too.
Investors, avoid painting yourself into corners with lenders. Protect your credit score. Stay on top of payments. Don’t give your lender any reason to hike up your rate – or deny financing altogether.
Rule #3 – Know What You Need
Part of avoiding regretful purchases as a real estate investor means knowing what you need. The best investors have done their homework and come to their property search well-prepared. They’ve solidified their criteria and have narrowed the pool of properties down to specific houses in specific neighborhoods in carefully chosen markets. Your criteria depends on your investment strategy. If you’re lenient with the criteria, you’ll find properties at odds with your portfolio and overall investment goals.
It might be slower going to be picky, but you’ll find that when you do buy, your property is a perfect fit – not just now, but for the long haul.
Rule #4 – Investigate Your Market
You could find an incredible property at a great price, and it can still be the wrong choice for your portfolio. The context of these properties matters a great deal! Smart investors aren’t just picky about their properties, they’re picky about their markets, too. They’re not in it to capitalize on the latest hype machine. They’re looking at the long-term: from the strength of the market’s economy and population growth to property price trends and rental demand.
Rule #5 – Learn When to Walk Away
Don’t compound existing regrets by falling into a sunk cost fallacy. Whether you’re entrenched in a bidding war or stuck with turning a dud property around, you’ve got to know when to exit gracefully. There’s no shame in conceding defeat. Never let a property outstay its welcome in your portfolio. Know your limits, assert those limits, and keep a tightly managed portfolio of properties.
Rule #6 – Examine Your Mindset
Buying regrets stem from three troublesome feelings: desperation, impulse, and insecurity. You shouldn’t buy in the throes of any of these emotions. Desperation will have you buying the next property that comes your way regardless of its place in your portfolio. You’ll do it just to “keep up” or “stay on track.” The regret comes when it does the opposite.
Impulse will cause you to overlook due diligence. You’ll leave the numbers largely to guesswork and may not scrutinize the property or the deal as closely as you ought. In the end, it won’t add up.
Insecurity causes investors to sink everything in a bidding war and overpay, to listen too readily to a sales team, or forgo due diligence in efforts to be the best bid or avoid rocking the boat.
Be confident. Be intentional. Be choosy.
Avoid investor regrets by investing with the ones who’ve seen in all and come out on top – REI Nation!