3 Investment Mistakes You Don’t Want to Make in 2023

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From skyrocketing interest rates to market volatility, increased rental demand, and everything in between – 2022 was a bumpy ride for real estate investors across the country. It was enough to make anyone’s head spin.

But it’s a new year, and you’re setting new goals for your real estate investing in 2023. what It’s also a good time to take a close look at what you’re going to do to make your real estate investment strategy run successfully in 2023. No to do.

Here are three things every savvy real estate investor should consider adding to their not doable List.

1. Don’t sit on the sidelines

“Some people want it to happen, some people want it to happen, others make it happen.” – Michael Jordan, NBA superstar

As we approach 2023, interest rates are likely to be higher for longer than you might expect. Does this mean you should sit it out and wait for your next deal to jump in? No – in fact, quite the opposite. Some real estate investors are finding less competition than they have been in many years! Switching strategies and finding new markets is a great way to stay active as affordability continues to deteriorate.

Your moves could be influenced by factors like homebuyers putting their buying plans on hold as they are worried about how a possible recession could affect their job security. This factor, combined with other market dynamics, such as higher mortgage rates, could keep rental demand strong in 2023.

The best deal you can get is the deal you have in hand, which makes sense when you look at the math. We can sit here and play the “what if” game until we’re blue in the face, but the simple fact is that none of us can predict the future. So, deal now if it’s still pencils – it’s all about the math.

Focus on reliable lender relationships that you know can be dealt with. While you may potentially pay a little more with the rate, the certainty of execution and action will be your strongest currency in the current market.

2. Do not burn

,Education is when you read the fine print. Experience is what you get when you don’t get it.– Pete Seeger, American folk singer and activist

As a real estate investor, you most likely work with money lenders to help finance some, if not all, of your deals. Hard money loans are quick, flexible, and can be relatively easy to secure, but it’s essential that you do your due diligence and understand the fine print before jumping in.

Be sure to discuss any prepayment penalties that may be hidden in the fine print. If you find the penalty excessive, stay away. Instead, try focusing on flexible prepayment penalties. Ultimately, the goal of a hard money loan is to provide short-term financing. Thus, if you can, avoid any lending option with severe prepayment penalties that can lock you into paying high interest rates for an extended period of time.

A forward rate lock or a guarantee that the lender will honor a specific interest rate at a specific cost for a set period of time. This strategy can insulate you from market volatility, which is essential, especially if you are financing or refinancing in a long-term agreement for a rental investment. If your current lender is quoting you a rate that floats during underwriting, run away – fast.

Why? Failing to lock in your rate in a rising rate environment can be costly. Imagine signing up at today’s rate, and a few days before closing, you realize your rate has gone up by 25-50 basis points! Your debt service could then be limited to a lower loan-to-value (LTV), not to mention the effects on your monthly cash flow, given the same cash-out income.

Look for lenders that offer forward rate locks on their rental investment loans. This will allow you to maximize cash flow and grow your business in the current market.

3. Don’t Wait to Organize Your Home

,Circumstances change, and you have to be proactive to change with those situations.” , Paul DePodesta, Chief Strategy Officer of the Cleveland Browns

Pay off your revolving loan and get your FICO® score as high as possible. The FICO® Score is one of the leading tools for measuring your creditworthiness and accessing the financing you need to maximize your ROI. Lenders need an efficient way to decide whether to qualify you for a loan and what interest rate to offer. In most cases, they will look at your FICO® score to pre-qualify your application and approve your loan. There’s no better time than now to start working to improve your score.

Having liquid funds available can be important because of the flexibility it provides. Cash on hand can be invaluable in times of financial uncertainty – thus the phrase, “cash is king.” So, build up your treasury for those opportunities that will present themselves. And trust me—they will present themselves.

Consider holding back on discretionary personal spending to increase liquidity levels and keep cash on the sidelines for when the right investment opportunities arise. Get your deals done now and sock away some cash – that way, you can buy with cash when you need it in 2023. ,

final thoughts

Fortunes can be made in real estate during down markets – look at some publicly traded real estate investment trusts as an example – and 2023 has all the signs of a declining housing market that could be accompanied by a recession or There may not be. Distress sellers can emerge during such times, creating an opportunity for real estate investors to short buy and generate cash flow to help them ride out the storm.

Rental vacancies and demand for homes fell to one of the lowest points in history during the crash of 2008. Nevertheless, some real estate investors were able to quickly increase their wealth by planning ahead, and the years that followed were one of the best times in history. For real estate investment. Experts are predicting that we are far from the major housing recovery seen from 2008 to 2012, but there will undoubtedly be opportunities.

Bottom-line? As you enter 2023, keep your eyes open for opportunities as they present themselves.

Note by BigPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.