7 Beginner Real Estate Investing Mistakes to Avoid

17

There are a lot of mistakes that can be made in Real Estate. In fact, many savvy investors still make mistakes or have overcome huge mistakes in their investing careers. The keys are to recognize, avoid, learn and move forward from these potential pitfalls.

Here are 7 Key Mistakes Beginner Real Estate Investors Make.

  1. Speculate – Most new investors follow the herd, listen to the media and buy with the hope the property will appreciate. This is as much of a gamble as hand picking stocks or going to the Casino. Buy below market properties that cash flow.
  2. Buy at Market Value – Beginners almost always buy property straight off the MLS for market value. You can find deals in any market and there are always distressed properties. Cherry pick from distressed properties at 70% or less of market value.
  3. Fall in love with a deal and get your emotions involved – Many beginners are guilty of this one. Their first few deals they spend minimal time finding a deal. As soon as a prospect is located, they fall in love and do anything to get that property. Emotions drive the decision, instead of making an informed business decision. Key is to get as many prospects that fit the criteria into the pipeline, filter out the duds and cherry pick only the best deals.
  4. Put too much down or too much of your own money – Real estate is an OPM or Other People’s Money industry. You should minimize how much of your own money is in a deal. And always make sure you have plenty of reserves to handle any not so pleasant surprises.
  5. Only have one exit strategy – To minimize risk, it is imperative to have multiple exit strategies. If you cannot flip a property you can quickly end up upside down, behind in payments and lose the property and your credit. Instead, buy below market properties that cash flow. That way you can sell retail, wholesale, lease option, seller finance, refinance, even rent and hold.
  6. Buy in Warzones – It is wish to buy property at a deep discount. In today’s market you can find huge discounts in many areas with the glut of foreclosures. Do your due diligence. Buying a property for 20K worth 80K sounds like a slam dunk, but not if the property is vandalized multiple times during repairs, surrounded by 20 other foreclosed properties and there is next to zero interest from renters or buyers due to the location in or near a warzone. Make sure there is strong demand from renters and/or ownership in the area.
  7. Do not consult an expert or build a team – Many people are do-it-yourselfers and cannot fathom the idea of another person giving them advice or handling tasks. Real estate can be very passive if you build a solid team and many experts are more than willing to give you advice that could significantly impact your success and experience as a beginner.

Many gurus make real estate investing sound so easy.

News flash, it is not.

Many beginners make one, even all of the above mistakes and have a miserable first time investing experience. Whether you are a beginner or an expert, it is always a great idea to get as many expert opinions as you can. They will make you aware of many potential mistakes and red flags. Play the numbers game and cherry pick from as many prospects that meet your criteria as possible. Also always do extremely thorough due diligence. And finally, happy and profitable investing!!

Photo Credit: jurvetson

Subscribe to our mailing list

* indicates required Email Address * First Name Last Name

About Author

As the founder of Real Return | Real Estate™, Ryan Moeller is a seasoned veteran of the real estate market — both locally in San Diego, California where Real Return | Real Estate™ is headquartered as well as across real estate markets throughout the US.

17 Comments

  1. Great list, Ryan! I was going to try and pick one out to highlight as the worst mistake to make, but I’d say they are all fairly equal. This is a must read for any newbie investor!

  2. You can imagine what most people thought after the real estate market collapsed – why did i buy, why did i do that? Well you did that because you thought you were going to make a fortune down the road when you sell. If only life was that simple, we would all be rich and prosperous. It’s time for everyone to come back down to earth with the price of real estate. Be smart and don’t jump into a real estate transaction because you heard a few stories about how easy it is to make money through buying and selling/flipping. This is a long term relationship you are investing in, be wise and look at all your options and study them.

  3. Great tips! One thing I would add is too much focus on quantity instead of quality investments. A lot of new investors think about getting a bunch of rental property under their belt and wind up buying junk. They don’t realize a handful of quality rental properties in good locations is much better than 20 rental properties that are dumps and in bad locations. I’ve seen some new investors lose a lot of money this way. They buy cheap thinking they can make more money off of a bunch of cheap properties.

  4. Great point Garrick. Finding home run deals and having the patience to wait and cherry pick for only home run deals is critical. I agree and see it often. Beginners are thought to duplicate cookie cutter deals and are impatient and suddenly end up purchasing 5 out of 10 prospects and end up with some crummy deals. They should be diligent and cherry pick the 1 home run deal out of 100 prospects. Thanks for the terrific comment!
    .-= Ryan Moeller´s last blog ..Cash Flow Duplex =-.

  5. Fantastic write up. I have been investing for awhile now and have found these tips to be more like Golden Rules. Also must agree with what the comment about Quantity vs. Quality. In my opinion, Consulting an expert and building a team is probably the tip that spurred my business to a new level. You will burn yourself out and maybe go broke, if you try to do everything yourself. Take the time to interview rehab contractors, get estimates, go to investor meetings and talk to someone who is making money in this game. This takes some time and effort but the ROI for your time is priceless!!

  6. I am new to the real estate game, and I would like to know where you guys spend your time learning. Are there any specific resources you can point me and my partner to. That would be very helpful.

    • You’re on it. BiggerPockets.com is the largest real estate network with 80,000+ members and 1/4 million monthly unique visitors. We have hundreds of thousands of forum posts, over 10,000 articles and endless networking and dealmaking opportunities. Set up your free account and you’ll have all the resources and support you need to get things going.

    • Lisa Holloway on

      I too have been to many REI meetings and spoken with investors. Building a team is definitely the way to go. If you’re still looking for more information and people to get connected with, this is one good site. I have also found another REI group that helps other investors. If you find you’re still looking, contact me and I will see if I can get you connected.

  7. William Campbell on

    I am just starting out in the real estate investing market as well . I have attended some 3 and 4 day training events . I anyone is around the Fort Worth area or Dallas I would like to get more insight if possible.

    • William –
      Before you pony up more cash for training events, I recommend slowing down and taking toms time to read through the thousands of articles here on the site and the hundreds of thousands of forum posts. There’s more helpful content then you can find anywhere else, and best of all, it is free. You’ve got a network of over 100,000 members to connect with and so much more. To get started, jump in, set up a free profile at http://www.biggerpockets.com

      Good luck!

  8. I have helped plenty of people fix and flip, but nothing compares to doing it yourself. Remember, if it doesn’t kill you it will make you stronger;).

  9. Great piece Ryan. I especially like the part about forming a quality real estate team. I know when I was starting out that was the most costly part for me as I lost multiple deals because my team had holes in it and its members weren’t holding up their ends. I stumbled across this site that should help those that are new to the game: http://www.fergusonfinancial.ca. I’m sure there are other more informative sites out there but if you are looking to expand on the topics discussed in this article I’d take a look there, they have a good section on building your real estate team.

  10. Thank you!

    I am super interested in investing especially in real estates and i really glad and thankful to this new learning that i got. I am newly giving most of my time in financial education so i really find it helpful. is there any other important mistakes to be considered in investing?

    • Hey Riz,

      The 7 above are all critical mistakes. Not doing due diligence, not focusing on one strategy or market, there are a lot of mistakes that beginners make, most can be avoided. I recommend educating yourself, picking one strategy and one market then give it everything you’ve got. If you run into questions and even if you do not, it is wise to consult other experts as they may help you avoid mistakes and drastically improve your business. If you approach them by offering them some good value, they will be happy to help!

  11. Our first investment was to help a friend whose finances had exceeded their pocket. My husband helped them get back on their feet (without bailing them out). When I received a small inheritance and this family needed to sell and move to a new better paying job, but couldn’t sell, we thought we could fix up their place and sell it.
    After bartering for a new roof and new ceilings (my husband did major repairs on their cars) and spending every weekend for a month or more, the place was ready to be sold — only it didn’t. Someone asked if they could rent from us and it all worked out very well. Their company rotated employees who continued to rent. That first investment led us to consider another opportunity. We saw an ad in the paper that said, 4-plex, $5k down and take over payments. We thought it would be a real dump but we took a look. The city was renovating that area and the building was very sound – just needed some cosmetic care. The loan on the building had been paid for 15 of the 30 years! The owner met us with capped IVs and a great need to have this monkey off his back. Once the deal closed, which took awhile, we began renovating one apartment at a time. Within 5 years the place looked transformed. We would never have sold it if we hadn’t had a job relocation but it actually gave us the greatest benefit upon its sale. We did a 1031 and found another place, and then another. We’ve never owned more than two rentals but, we never want to get stuck like we did in the last one. We were relocated and had to sell again but the market was good – not like our realtor! It didn’t sell, not with those pictures and that attitude! We let it ride for awhile and finally took it off the market. Having moved out of state, we had to put it in the hands of a management company – bad play. We didn’t go under but the profits were less than 2k for the whole year. How was that even possible? It is finally selling without the “help” of any realtor (thank you craigslist) but we’re apprehensive about buying anything where we live now. The recession has hit our town in quadruplets and it just doesn’t seem it would be a good idea to invest here. We don’t want to do long-distance again. I talked with a friend/financial counselor (professionally & volunteer) who recommended that we could buy land to rent for farming. (We do live in an area surrounded by farms.) That is very big around here but I can’t see it really appreciating, though, I realize anything is a risk. I’m not afraid of risks but do you have any other advice for someone who needs to invest. We have no retirement to fall back on except this investment so we want to do more with it than let it sit in the bank. Our home is at such a low interest rate, we think it would be foolish to pay it off (2.8% – 15 yr). What do you think? Can you help us?

Leave A Reply

css.php