Many people tried to get in on real estate investing during the economic downturn.
And if you had the money or had sparkling enough credit to get a coveted loan, why not? There were lots of cheap properties available on the market due to the foreclosure crisis.
As the market is rebounding and prices continue to rise, more people are interested in getting in on real estate investing now, while prices are still relatively low (of course, depending on your local area real estate market).
As with all things, there is more than one right way — and certainly more than one wrong way — to go about real estate investing. Though the “right way” may be different for your unique situation, there are a few universal “wrong ways” that can be easily avoided as long as you’re aware of them.
So without further ado, here are the 10 deadliest mistakes for beginner real estate investors.
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10 Mistakes Beginner Real Estate Investors Make
1. Not Doing the Research
Real estate investing isn’t brain surgery, but it’s not exactly riding a bike, either.
Do your homework, learn what you can. Read the articles here on BiggerPockets and on other sites; check out books from the library; attend real estate investing workshops. Educate yourself before you put your financial security and future retirement plans on the line.
2. Planning as You Go
Don’t move forward without a plan. Don’t buy because you think it is a steal, then try to figure out what to do with it afterwards. Make the plan, then find a property that fits the plan — not the other way around.
3. Going it Alone
By definition, you’re a beginner real estate investor. You probably have an idea of what you’re doing, but not for sure.
You need people on your side to help you. Some people to get on your side would be a good real estate agent, an appraiser, a home inspector, a closing attorney and a lender — perhaps also a financial planner. As you get further in, a plumber, an electrician, a heating and air conditioning expert, or HVAC, avcontractor and more.
4. Thinking It’s a Wealth Shortcut
Contrary to what the infomercials on TV would have you believe, it takes serious work to invest in real estate.
Yeah, sure, they make it look like it’s all sitting by the pool with your laptop making tons of money, but keep in mind, those people on TV are also trying to make money by selling you books and educational programs. It’s tough work being a real estate investor. It’s not easy and it is a long-term investment that takes time, money and energy. But the rewards can be well worth the work!
5. Not Doing Due Diligence
Evaluate the neighborhood. Investigate the property’s history. Have the property inspected. Read the contract carefully.
Real estate investors often have to move very quickly, but that doesn’t mean you shouldn’t read the fine print and do your due diligence.
6. Paying Too Much
One of the biggest reasons investors don’t make money is because they pay too much from the start for the properties.
So much of the profit you make is determined by how much you have to pay at the start. This goes for flipping and for renting. Paying too much for a rental unit eats away at your profits, especially if it needs repairs and/or you have to take out a loan to buy the property.
7. Making Miscalculations
Say it takes you longer to rehab the house for resale. Or it costs you more, and now your profit margin is in question.
Perhaps you misjudged how eager people would be to rent your space. Do your homework, make your cost and time calculations, then double it. Can you handle the results? This could be the reality, so plan accordingly.
8. Misjudging Cash Flow
As indicated in the previous item, sometimes it takes time to get good renters, and everyday a unit is empty is money out of your pocket.
If you’re flipping, your property could end up on the market for longer than you expect. During these lag times, you’ll need to make sure you have sufficient cash flow to cover any costs you may have associated with the property.
9. Focusing Too Narrowly
If you’re serious about real estate investing as a form of wealth building and retirement planning, you’ll need to be able to look at more than one type of property or one deal at a time.
If you’re flipping, keeping a lookout for new opportunities will help you keep a constant stream of potential revenue coming your way. If you’re looking for longer-term investments, casting a wider net will help you get the portfolio you want.
10. Only Having One Exit Plan
What if it doesn’t sell? What if the rental market stalls? You don’t want to get stuck with a property that isn’t making you money. To do your best to make sure that doesn’t happen, you need to plan more than one strategy for making money with the property.
There may be more mistakes that first time real estate investors make, but these are some of the universal ones that can be avoided, accounted for, or at least handled with more awareness if (when?) they happen.
The truth is, every real estate investor has made at least one mistake with their own planning. You learn from them. Then you pass on what you learned to other people.
What mistakes did you make starting out? What is one thing you’d tell the novice investor?
Let us know in the comments section!