5 Things that Will Kill Your First Investment

Everyone makes mistakes. It’s just part of being human. Even the smartest, most successful investors aren’t immune to errors, either. So naturally, as a newbie, you’re bound to have a few mess-ups. Most of these mistakes will probably be pretty harmless, but there is definitely potential for big, potentially lethal errors if you’re not careful. Here are the 5 biggest threats to your success as a new investor:

#1 - Investing in a bad location

The biggest asset in any piece of property is its location. You could have a brand-new, gorgeous home that literally takes people’s breath away, but if it’s in a dumpy part of town, it won’t matter. The value simply won’t be there. Before you buy any property, you need to do an extensive study of the location and how it has performed over the years. Look at the property values, the schools, the crime rate, the local amenities, and anything else that will help give you a complete picture of the neighborhood. Don’t make a move until you’re certain that the house A) is priced according to its value, and B) will retain and hopefully improve that value over time.

#2 - Getting bad financing

Who do you want to make money off your property, you or your lender? If your financing sucks, it’ll be your lender who’s enjoying the payday, not you. So what constitutes bad financing? It’s any combination of the following: high interest rate, high monthly payment, balloon payment, personal recourse, or adjustable rate. If you’ve got two or more of these happening with your loan, you may be taking on too much risk. Make sure that you weigh ALL your financing options - including private loans - and negotiate to ensure that you’re saving every dollar you can.

#3 - Not calculating expenses/income properly

This one is absolutely lethal, and I’ve personally seen it happen to investors over the years. I’m always preaching about how important it is to run the numbers on a new property before you buy, and it’s because any miscalculation can lead to a major financial loss. One area in particular that people underestimate is just how much repairs and renovations will cost. If you don’t have a sizable emergency fund to take care of these, you will find yourself in a very bad spot. When evaluating a new property, it’s vital that you account for every bit of income and expense that you will see over the course of ownership so that you have an accurate picture of your financials. If the numbers don’t add up to money in your pocket, keep looking.

#4 - Getting emotionally involved

It’s not uncommon for newbies to invest in properties financially AND emotionally. To be fair, real estate investment can be something of an emotional roller coaster, and it can be difficult to separate feelings from logic sometimes. It’s important that you do, though, because letting your emotions drive your decisions is a big mistake. To get the most out of your investment, you need hard facts and careful analysis so that you can make objective decisions that will put you on the path to success. Check your emotions at the door, and let those facts and analysis form the basis of your decisions.

#5 - Not revising your plan when you should

If it ain’t broke, don’t fix it. But if it IS broke, by all means, fix it! And by fix it, I mean figure out what went wrong and then don’t do it again. Sometimes plans don’t work out how you want them to, and the only solution that makes sense is to change it to something new and, hopefully, better. Once you’re investing, you need to go over your strategies periodically to ensure that they’re effective and profitable. If they’re not, change them! Educate yourself, talk to other investors, and develop a new plan that will get you the results you want.