Real Estate Investing Basics

The No. 1 Reason New Real Estate Investors Lose Money

Expertise: Real Estate Investing Basics, Personal Development, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Flipping Houses, Real Estate Deal Analysis & Advice, Personal Finance, Real Estate Marketing
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It’s not a 100 percent sure thing, but it’s very likely: as a new investor, you will lose money on your first few real estate deals. Let’s talk about why that is.

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Look, guys. The reason is pretty simple. It’s because you suck, OK?

The No. 1 Reason Real Estate Investors Lose Money

Jokes aside, with any new venture that you start, you’re probably not going to be too good at it. I’ve said it before and I’ll say it again, all good things take time.

Lack of Experience

I don’t want you guys to become a jack of all trades and a master of none. Truly focus in on what it is you want to do. Select a specific niche within the real estate industry, and focus on that. Then you will give yourself the best possible chance to stop sucking as quickly as possible and actually start being good at whatever it is that you’re doing.

The video above is more catered toward someone who is looking to buy, fix, and flip. But I believe you’ll be able to take some valuable information from it and implement it, regardless of the specific niche that you’re looking at doing in real estate.

Related: 4 Tips for Surefire Business Success

Miscalculating the Numbers

More specifically, I believe that the number one reason why many investors lose money on their first few real estate deals (including myself when I started) is because you get the numbers wrong. What I mean by that is you get the numbers wrong when acquiring the property.

You’re not necessarily buying it cheap enough to give yourself a margin of safety to make a profit on that particular transaction. You might have wrongly calculated the closing costs. Just because the property was listed for $100,000 doesn’t mean the buyer will actually acquire it for $100,000.

What if the best offer is only $90,000? What about the various closing costs and associated fees, Realtor commissions, back taxes owed that were maybe overlooked? Or maybe there are buyer concessions?

businesswoman doing paperwork at office desk, working through finances, using calculator and making notes in her notebook with pen

Underestimating Rehab Costs

Let's talk about rehab, too, and miscalculating the actual rehab costs. Or what about a contractor potentially screwing you over? That is something that happens very often. It still happens to me to this day after more than 500 deals.

I’ve said it before, guys: real estate is truly a numbers game. You have to focus on the numbers from a commitment standpoint. It starts with how many hours you spend in the office working on your real estate endeavors.

Related: 3 Fundamental Tips for Real Estate Investing Newbies

Not Working Hard Enough

How many times do you pick up the phone to talk to prospective sellers? How many offers do you submit? How many conferences do you attend to meet like-minded people? How many emails do you send? How many properties do you tour? How many deals do you flip?

Real estate is truly a numbers game, and I believe that many beginner investors lose money on their first few transactions because they get the numbers wrong. This usually occurs more so on the transaction side of things than on the actual commitment side of things.

I’m not the smartest guy out there; I quit school at a very young age. But I know that nothing beats hard work. I’m living proof of that!

So as long as you are willing to work hard and commit to the numbers, you will recover from those first couple deals and figure it all out. It took me five deals before I figured my stuff out and made some money on a flip. As long as you work hard, you will recover and do some amazing things long-term.

How to Be Successful in Real Estate Investing

I’ll leave you with one last piece of information—one that you’ve probably heard before. You make money when you buy, not when you sell.

And always underestimate your income and overestimate your expenses. You can’t go wrong including extra miscellaneous expenses when you are looking to rehab a property or determine the sale price of a property.

Whatever it is, I don’t care—make up something. Literally, make up some stuff just to include it as an expense so you don’t think you’re going to get that extra income.

Always paint a horror story or the worst possible scenario. Once you do that, if the numbers make sense after you’ve calculated that worst case scenario, then the investment might be worth pursuing further.

Have you lost money in real estate? Have you done well in real estate? I’d love to hear your story either way. 

Share in a comment below!


Engelo Rumora, a.k.a."the Real Estate Dingo," quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate al...
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