Every real estate investor was at one time a newbie. We all had to start somewhere, and most likely it started with dreams of making it big, of quitting our jobs and retiring to the good life. I can remember those days. I was full of enthusiasm and excitement, but I was also often blind and ignorant as to what I needed to do and to whom I needed to listen. And being in such a position can make you very vulnerable.
That is the thing with many newbies, and I still see it today. They are full of enthusiasm and excitement, which is good, but it can also be blinding. They can’t wait to get started, can’t wait to be successful and quit their jobs and move to the beach. This eagerness gives many a newbie a blinder of sorts. It turns off that part of the brain that tells them to stop and think — and many let down their guard. Because of this, they can get into trouble before they even really get started.
Not letting down your guard is perhaps the first thing any aspiring real estate investor should learn to do. But what exactly should they be on guard for? What should a newbie be wary of? Here are some thoughts.
11 Common Pitfalls Real Estate Newbies Should Guard Against
1. Jumping in Too Fast
Newbies, don’t be so quick to pull the trigger. Relax. There are plenty of deals out there. Take your time. Learn about your market. Learn what constitutes a good deal. I understand that you are excited about your new real estate venture and that you really want to get started. But moving too fast might get you in a heap of trouble. Bad deals can be really hard to fix. So learn to tread water before going off the high dive.
2. Taking on Too Big of a Project
Don’t take on a burn out as your first rehab, and don’t buy a 30-unit apartment building as your first investment property. These types of projects are simply too complicated for most first time investors. Instead, pick up a single family home or two, which require minimal amounts of repairs. You’ll get your feet wet and learn the business as you go along. Plus, once you get in you may find that…
3. Possibly Hating Real Estate
Being a real estate investor is not a day at the beach. It can help you get to the beach more, but being an investor means running a business. Every day presents new problems and opportunities that have to be tackled, and win or lose, it is all up to you. Some folks thrive in this environment; others do not. The thing is, you can’t really tell until you do it. So start slow to make sure real estate is the thing for you.
4. Overextending Your Resources
Don’t spend all of your money. Keep some for reserves. You WILL need it. Also, manage your time well. Expand slowly but surely, so you can learn the business and avoid burning yourself out.
5. Trying to Do Too Many Things
Some newbies want to do it all. They want to buy and hold, rehab, retail, wholesale, etc. This shotgun approach often causes a loss of focus, which in turn can often lead to failure. Again, start slow and focus your efforts. You are much more likely to be successful that way, and you can (and should) branch out later on after you gain some experience.
6. Trying to Make the Numbers Fit
Be very wary of trying to make the numbers fit. The numbers generally do not lie, and if they are telling you there is no deal, there is likely no deal. Don’t think that you have overlooked something. Don’t think that repairs and expenses will be cheaper. They will not. The formulas are tried and true. Believe them!
7. Being Fraudulently Sold a Dream
There are lots of so called “gurus” out there. Some are good, some are bad. Some you should listen to, some you should be wary of. Be wary of anyone selling you the dream of sitting on a beach. As I said earlier, real estate investing is about running a business, and at least at first you need to be very involved in it. Don’t fall for the hyped-up dream.
8. Being Offered a “Home Run”
So-called “home runs” in this business are few and far between. They are out there, and I have hit one or two, but doubles are much more common. You should be very wary of anyone promising a home run deal. It may very well be a home run, but ask yourself why is it being pitched to a newbie like you? Do your homework and run your numbers before you buy anything. Hopefully then you will hit a home run or two in your career.
9. Being Told You Have to “Buy Now!”
You never have to “buy now!” Be it a property or educational information. Sleep on it at least. I find my mind really clears and I make much better decisions after 24 hours and a good rest.
10. Being Told You Have to Pay a Lot for an Education
I know of folks who have paid upwards of $70,000 for real estate education. And while there may have been some good materials in that product, $70,000 is just plain crazy. Sure, sometimes it is wise in my opinion to spend a little on educational materials, but many, many things can now be found for free or at least very cheap.
11. Working With (Many) Real Estate Agents
I may catch a bit of flack for this one perhaps, but it is true. Most real estate agents are simply not set up to work with investors. They really do not understand what we do or how we think about real estate. What many claim is a deal simply is not. Working with a real estate agent can be a good thing for some, but take your time and find one who understands real estate investors and will truly help educate you and help you find what you are looking for.
Being successful at real estate is a process of learning and doing. How long that process takes is up to you, but it generally will not and cannot happen overnight. Understanding that is often half the battle — and being persistent is the other half.
So you newbies out there, I know real estate is getting hot again, but please keep your cool. Take your time, learn and follow the advice in this post.
[Editor’s Note: We are republishing this post to help out our newer members.]
What else should newbies be wary of?
Please share your thoughts with your comments.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.