There are many ways to invest in real estate, but inexperienced investors are often drawn to the most difficult, risky way to do it: DIY investing.
This is a real estate investment method where the investor does it all. They investigate the markets, go through the rigamarole of buying properties, perform renovations, market the property, find residents, deal with maintenance issues, handle disputes and legal, and work through turnover…they do everything.
And, as you can imagine, that’s a risky way of doing things. Here’s why:
Property Search and Acquisition: Finding the right property can be a long process, requiring research, property visits, negotiations, and due diligence. It can eat up your time, especially when balancing other jobs or commitments.
Resident Management: Finding residents, handling issues, and collecting rent require ongoing effort. That’s not to mention the complications and stress of dealing with late payments, evictions, and conflict.
Maintenance and Repairs: DIY investors are responsible for all maintenance, repairs, and emergencies. This includes finding contractors, scheduling repairs – even doing some of the work yourself! That isn’t how most investors want to spend their time.
Limited Market Knowledge: DIY investors may not have the same level of insight as professionals when evaluating markets, understanding local regulations, or spotting investment opportunities. Breaking into a market without extensive market knowledge is pretty challenging.
Legal and Regulatory Risks: Real estate laws and regulations are complex and vary by location. DIY investors may inadvertently violate landlord-tenant laws, zoning restrictions, or tax laws, leading to costly fines or lawsuits. Ouch.
Valuation Errors: If the investor lacks experience in accurate property valuation and market analysis, they may misjudge a property’s actual value. Investors don’t want to overpay or have misguided notions of property values.
Vacancies: DIY investors are more likely to experience extended vacancy periods. Remember, turnover is their job. That means getting the property professionally repaired, cleaned, and prepped for the next family. Turnover is expensive. We don’t want it to drag out longer than it must. But subpar marketing efforts, slow timelines, or inadequate procedures can draw out vacancies – stunting your cash flow.
Lack of Quality Control: Inexperienced DIY investors may not have a proper screening process, leading to unreliable residents, higher turnover, and potentially costly evictions. Additionally, they may not have the trained eye for detail that great managers need.
Inadequate Lease Agreements: Without professional guidance, DIY investors may use poorly constructed lease agreements that fail to protect them in case of disputes or damage to the property.
Ready to get professional property management? Read this: 12 Qualities to Prioritize in Your Rental Property Management Team
Overpersonalization: When you’re in the weeds when choosing and maintaining a property, you risk personal attachment. Making renovations based on personal preferences rather than market demands or holding on to underperforming properties due to sentiment is a surefire way to sabotage your portfolio. It causes you to be a subjective rather than an objective decision-maker.
Underpricing Rent: Inexperienced DIY investors may misjudge the rental potential of their properties. Underpriced, and you miss out on valuable revenue. Overpriced, and you may have trouble filling vacancies.
Poor Negotiation Skills: DIY investors often lack the experience to negotiate effectively with sellers, contractors, or residents, resulting in bigger expenses.
Managing Multiple Responsibilities: DIY investors need to know how to juggle. They’re property managers, accountants, marketers, and maintenance workers – doing the work of several professionals all in one person. The burden of these tasks easily ends in burnout.
Dealing with Emergencies: Being on call for emergencies (e.g., burst pipes, heating failures, or disputes) causes significant stress and disruptions to work-life balance.
Limited Ability to Scale: You can only do so much when solo investing. You can’t be in multiple markets. It may be tough to deal with several properties, even within the same market. Because of human limitations, DIY investors can only take on so much. Going at it alone means forfeiting your real potential.
Some people are all-in with DIY investing. They might even be successful. However, most investors fail with this strategy, especially those without practical industry experience. Investing in professionals who can come alongside you, help avoid mistakes, and facilitate healthy portfolio growth without the hassle and headache is far better.
Start investing with REI Nation, where you invest and we handle the rest!