Specialist · Grand Rapids, MI · Member since 2012 · 582 posts · 353 votes
What do you think is the SINGLE most dangerous pitfall for real estate investors (decisions, thoughts, habits, personality flaws, beliefs, behaviors, etc.)? What kinds of personal liabilities keep us from being successful in our endeavors?
Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
13y
Lack of motivation
Real estate is just like any other job/business. If you are hungry and really want it, that will help you recover from most of the other pitfalls you encounter. There will always be bad decisions, bad ideas, bad habits etc. But those are not enough to keep people from being successful at things they are truly passionate about.
Flipper · Irvine, CA · Member since 2013 · 349 posts · 45 votes
13y
Knowledge and education. You have to know what you are doing and especially if you are inexperienced, you should research and study to minimize mistakes.
Apopka, FL · Member since 2012 · 207 posts · 120 votes
13y
Being an undercapitalized landlord.
If you don't have enough cash to do maintenance when it's due or must take the first tenant application because you gotta have cash to make the next mortgage payment then you will eventually lose big. Big expenses come at the worst time and if you aren't financially prepared you will eventually be destroyed by things you didn't see coming.
Specialist · Grand Rapids, MI · Member since 2012 · 582 posts · 353 votes
13y
The pitfalls of impulsiveness and hidden costs both resonate a lot with me. When I think of the most stressful situations I've ever been in as an investor, they almost always had something to do with one (if not both) of these issues.
Both are SUPER easy to fall prey to. It requires very little effort to overlook expenses that are very real, and it is SO easy to caught up in a whirlwind of excitement and emotion with a new deal.
Yikes. Those are two huge stumbling blocks to watch out for.
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
13y
Its so hard to limit to just one....
but the number one imho, is not knowing values. That causes people to pay too much, under estimate their profit and ultimately cause them to fail in the real estate investment business.
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
13y
The most dangerous pitfall is getting into this business for the wrong reasons. Many people get so caught up in the HOW they the completely ignore the WHY.
Why is this dangerous? If you start out because you want to be an overnight millionaire, you will be massively disappointed. If you want to quit your job so you can flip houses, you will be disappointed to learn that flipping houses is a job. If you want easy passive cash flow, you'll struggle with the reality that passive income takes time to materialize.
WHY you get into this business will direct your strategy. Not knowing why will leave you to wander aimlessly without a strategy, ultimately resulting in getting lost and throwing in the towel.
Specialist · Grand Rapids, MI · Member since 2012 · 582 posts · 353 votes
13y
Great points Brian Burke - while this seems like an obvious thing that everyone would naturally think through, I think this kind of thoughtful consideration is actually quite rare.
Real Estate Investor · Fort Wayne, IN · Member since 2013 · 168 posts · 78 votes
13y
There are a lot of great responses already.
Pitfalls for Investors:
1. Not knowing the market: what your returns will be and the type of person/mentality you will be renting to.
2. Not having a safety net of cash for unexpected repairs, vacancies and so you are desperate and take the first tenant you meet.
3. Not knowing your WHY.
My why is freedom. So I buy now while prices are amazing and then will just pay off so I can enjoy the full effects of the cash flow. I also work full time and every week I remind myself I do it because I don't want to live off of my investment money, I want to be free with that money.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
13y
My biggest pitfall was a combination of:
a) Not knowing that the cheese could (or would) move, and then it did combined with b) Negative cash-flow
I had a system going where I would buy/fix/rent and then do a cash-out refi, Was making great money this way, but picked up a little more negative cash-flow on each deal. The cash outs on the refis were more than enough to cover the bills and feed the fam, but it eventually crashed when the market crashed. Also, I got to the point where the banks wouldn't do the loans for me any more.
Now, I'm seeing my next cheese-move on the horizon and trying to prepare for it before it happens. I've mostly bought MLS-listed REOs during my career, but I am starting to see this market get tighter. I am making offers at 70% minus repairs (or maybe a little lower) and other people are snatching them up for 5-10K more than I am willing to pay. So, I'm trying to diversify and start getting some deals using marketing, wholesalers, and bird-dogs instead of MLS.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
All great points, but what I call "crossing the line" can be a big deal. Crossing the line as in writing contracts that you are not a party to, the unauthorized practice of law, dealing in matters that require a license, law, RE, mortgage, loan servicing, contracting and construction skills. Most investors will try to do things themselves to save money thinking they know, you don't know what you don't know, don't cross the line! :)
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
13y
Impatience. Impatience causes you to pay too much instead of waiting for a deal that really fits your plan, rent to tenants who aren't right because you're worried it's not renting fast enough, maybe take on too much at once because you want it all now. You can have all the knowledge you need and a good business plan to go with it, but your own impatience can really undermine your plans.
Real Estate Investor · Greenback, TN · Member since 2012 · 268 posts · 115 votes
13y
Wow.... that's hard to nail down to a single thing because there are so many things that, if done wrong, can result in the collapse of the entire business.
I guess I would have to say the single most dangerous pitfall would be failing to create a comprehensive business plan/model that provides a solution for everything that will need to be done..... as well as anticipate market changes which require adjustments to your business model.
There's a famous military General (I think it was General Patton) that was credited with being a military genius because he gave immediate and specific commands for every scenario the battlefield threw at him. There was no hesitation. He credited his success purely to planning. Almost nothing ever happened that he had not already though of and made a specific planned response.
If you "attack" your real estate career without a bullet-proof plan, your chances of survival are very small. I think that's why the business start-up failure rate is so incredibly high.
Salem, VA · Member since 2013 · 26 posts · 31 votes
12y
over leveraging/ being undercapitalized - must have cash on hand, figure out how much you need, and multiply by two there's often something you didn't plan for, and it ALWAYS going to be expensive.
I have watched several people put their balls out a little too far trying to make things they can't afford happen, hopping for a huge payday, and lose it all.
Getting too creative with financing is another pitfall, if you need a bank, a hard money lender, some owner financing, and money from anyone on Facebook that will lend to you to make a deal happen, you can't afford it! I have seen people borrow money from a ridiculous amount of sources to make something happen because they went to some "guru" class that promised to make them a millionare in 8 minutes using other people's money. There is good money to be made in Real Estate, it's much less than people not involved believe it is, and it sure as hell isn't a get rich quick scheme. It's a big boy game, and requires big boy money to play.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Agreed Jeff, actually the biggest risk of loss in RE is failing to comply with applicable laws, especially in financing. You can lose the property, the amount owed to you, you can be forced out of business or even jailed.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
12y
While many of the ideas posted are great, I personally believe the answer is a simple one. As far as getting started is concerned and not talking about those with existing investment portfolios and/or careers, the single biggest pitfall by far is FEAR.