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Five Reasons Why So Many New Investors Fail?

by Michael Zuber on February 11, 2013 · 5 comments

  
Fail

Someone had to tackle the elephant in the room and I have never been afraid to take on a challenge or a controversial topic so here it goes.

First let me be very clear.

After 11 years of real estate investing while working a demanding full time job we are on the verge of financially freedom and no longer have to work for anyone thanks to real estate investing.  This is a great feeling so I know first-hand that real estate investing is a path to financial security and financial freedom.

Now let’s talk why investors fail (I am going to be brutally honest in this post)

1.) Never Start

Lot’s of people fail because they never make that first investment.  Keep in mind it is hard to retire or build any sense of financial security with real estate unless you actually buy real estate.  Now please understand I am not saying rush out and buy something – that would be worse than not buying a property. If your first property is a winner you will likely buy a second and a third, etc.

2.) Laziness

Let’s be honest – most people are lazy or at least lazy when they can be.  Unfortunately, I see laziness in a lot of investors, as they look for short cuts or they trust people they don’t know with money they worked hard to save.  If you don’t do the homework and you don’t do the leg work to see at least 50 properties in your market before you write one offer you are gambling and eventually you will get burned.  I think it is so odd that new investors would think that just because they are who they are they can walk into a new market with a 30 minute MLS search and buy a great deal.  Hint: it doesn’t work that way and you will end up buying something no one wants, in a bad area that will lose money.

3.) Following the Pack

Following the pack is another reason people fail.  I guess it gives people comfort when they can say “I am buying in this or that hot market.”  But let me tell you – hot markets turn and I guarantee you won’t get out in time if you are investing in multiple hot markets based solely on momentum and what others are doing.  I should note that the “herd mentality” works both ways.   I found many of my deals of a lifetime when investors turned cold to real estate.  In the end, I say get confident in your research, your decisions and finally don’t be afraid to sell if the market gets too crazy.

4.) Work Through Failure

Failure is a part of this business.  You and I will make mistakes in this business.  I am sure it sucks to get caught in the down draft of the bubble.  But you have a choice – you can either grind on the past mistakes or learn from them and move forward.  You succeed in this business by looking at opportunities in front of you not looking behind you at the past.  That said please remember the following saying, “The most expensive mistakes are the ones you repeat”.  So learn from them, don’t repeat them and move on.

5.) Work Hard and Stay Committed

For the last one I will actually combine two ideas into one as they are very related in my world.  They are hard work and long term consistent commitment.  This business is not easy, especially for the new investor starting out.  Combine this with the fact it will likely take years before you see any real meaningful and repeatable cash flow (Remember I am a Buy and Hold guy not a Flipper.)  Does that sound like fun or the vision painted in those Guru books? Nope?  Good it shouldn’t.  I tell everyone to plan for no less than five years and ten years is a better plan. Note it took us 11 years and two market cycles to get us even close to where we wanted to be.

So there you have it.  A quick list of why new investors fail.  None are earth shattering but they all needed to be said.  If you are new think about them and decide how you can ensure you won’t fail for one of them.

Good Investing

Photo: Ethan Hein

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{ 5 comments… read them below or add one }

Navtaj Chandhoke February 11, 2013 at 7:32 am

Five Reasons Why So Many New Investors Fail is very well written article.
Again 80/20 rules apply just like another profession.On the other hand in Real Estate investing you will be shocked that less than 2% investors control 98% of the investments.
Here come the 1% factor where 99% have nothing else but complaint being poor.The naysayer rule.The moment you start in Real Estate investment you are surrounded with negative people who intend to bring you down really fast.
That’s why you need to a member of local REI club [promo removed] to stay focus to achieve success in real estate investments.
I enjoy reading this article and waiting to read the next one.

Reply

Mike Carr February 11, 2013 at 9:38 am

Great article. I completely agree on all five points. As a newer investor my biggest failure was listening to the gurus! I started with very little money (I am a wholesaler) and struggled to get by. The fact is you need money to make money.

Reply

Geoffrey February 13, 2013 at 12:21 pm

Great Article Michael, I have been following your posts for quite sometime now, and you really have alot of knowledge to offer. Question, when you say meaningful cash flow? could you elaborate on this a little more? i would think your leaning towards, ability to live off of?

Also, would this be different for some investors? depending on their financila situation? or is this a general rule of thumb?

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Ali February 18, 2013 at 2:21 am

Man, Michael, you nailed this one! I am completely supportive of all your points. They are all key, but my two favorites are working through the failures and not following the pack. Everyone wants to flip and wholesale, but fact is, it may just not be your thing! Got to find your vibe. Plus, if you are only following others, you aren’t learning what you need to be learning to succeed. Then, while you are learning, you will definitely fail. But you have to work through that and go on. Most don’t.

Reply

Mike March 28, 2013 at 8:01 am

In any business, without complete information, the chances of failure are more. It is important that you know each and everything about your business, and know about the current situation and its impact. In real estate business, many investors don’t do proper research about the market and ends up in getting loss or a little profit. Facing a loss doesn’t only means you lost, it also mean that you can learn from this and prepare yourself for future to avoid such mistakes.

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