Specialist · Grand Rapids, MI · Member since 2012 · 583 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?
There are so many good posts, it is hard to add more. I would say discipline. The discipline to stick to your plan, the discipline to not just acquire new properties, but to call when you look at applications for old landlords, to call when rent is late, to get a leaky sink fixed in 24 hours, etc. It is easy for me to get caught up in the 50K$ deal and forget about the $200 deal. Every thing needs attention, not just the fun or exciting stuff.
Great question. I agree with a few of you. FEAR and making impulsive decisions. Never buy something to just try and stay busy. I've been guilty of overanalyzing a deal over and over again, trying to justify why it's good. When in fact I should be sticking to my guns.
Pitfall - a hidden or not easily recognized danger or difficulty.
I have two difficulties that I have experienced the last couple of decades and these are probably the top two of a long list of pitfalls
The first, I agree with Will. Fear can be a difficult hurdle to cross but to go a step further, I will say "perseverance". I have run across many people who either want to be an investor but prevent themselves from moving forward due to fear or those who have jumped into this arena quickly only to find out they do not have the perseverance to either follow through or stick it out on a deal that can be challenging. I've seen so many investors stop three feet short from gold (reference book - Think & Grow Rich - Napoleon Hill).
It can be disappointing when you are the only one who believes in your vision when those around you throw in the towel. I've had mortgage brokers, title agents, sometimes partners give up as well as sellers and buyers fall short and even family members who have given up leaving you with little to no support.
I've dealt with this personally and have prevailed to closing in defiance of quitting. I have had many difficult deals that seemed impossible yet because of my belief in myself and refusal to give in, I was able to close all those challenging projects. I even had one of my difficult deals which took me over six (6) months to close because of my stubbornness for success and desire to complete the challenge... I was able to net back $105K profit 10 years later.
The second, most important pitfall on my list is poor due diligence. This is an art form. It is a craft you must hone in on and perfect. Is it fool proof? Of course not, but your room for error is minimized to single digit percentages if you just put in the time and work to do your homework.
Many times investors will be so committed to making as many offers as possible (hoping one sticks), that they forget to do the research necessary to recognize whether they have a quality successful deal in their sights.
Lack of Perseverance (& Fear)
Poor Due Diligence
These are my top two most important pitfalls for anyone in general.
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.
Bryan L; It's good to see that you have recovered after a RE "meltdown" . How have lenders viewed what must have been pretty ugly post apocalypse credit report as you have sought to rebuild?
Back on Topic, I have no real world experience in "Pitfalls", but I would guess that 1. Being an absentee owner/paying property management fees from afar is a major RE Pitfall and 2. Having zero or near zero rehab experience and relying on contractors or property management companies to handle estimating/materials purchasing/rehab labor.
A pitfall many investors endure, whether they rehab, wholesale, property manage MFR, landlord SFR, commercial consultant or whatever other title(s) that can be held... they forget that this is a business. It should be treated as such. Doesn't matter if you do 5 deals per year or 205 deals per year. Residential as well as commercial investors alike. Doesn't matter how many hats an investor chooses to wear within their day to day REI activities. Real estate investing is a business. If its your business that you intend to profit from and grow to be viable for years to come then, you need to accurately perform the responsibilities of those key officers (ceo, cfo, coo) and be mindful when to delegate some of the other duties not befitting corporate officers. Know your worth and never stop learning so that you increase that value....
@DL Martin - When my business collapsed, I was fortunate enough to be able to go back and get a j.o.b. in my previous line of work. Thankfully the salary was enough to feed the beast and I never missed a payment.