11 Common Pitfalls Real Estate Newbies Should Guard Against

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Every real estate investor was at one time a newbie. We all had to start somewhere, and most likely it started with dreams of making it big, of quitting our jobs and retiring to the good life. I can remember those days. I was full of enthusiasm and excitement, but I was also often blind and ignorant as to what I needed to do and to whom I needed to listen. And being in such a position can make you very vulnerable.

That is the thing with many newbies, and I still see it today. They are full of enthusiasm and excitement, which is good, but it can also be blinding. They can’t wait to get started, can’t wait to be successful and quit their jobs and move to the beach. This eagerness gives many a newbie a blinder of sorts. It turns off that part of the brain that tells them to stop and think — and many let down their guard. Because of this, they can get into trouble before they even really get started.

Not letting down your guard is perhaps the first thing any aspiring real estate investor should learn to do. But what exactly should they be on guard for? What should a newbie be wary of? Here are some thoughts.

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11 Common Pitfalls Real Estate Newbies Should Guard Against

Jumping in Too Fast

Newbies, don’t be so quick to pull the trigger. Relax. There are plenty of deals out there. Take your time. Learn about your market. Learn what constitutes a good deal. I understand that you are excited about your new real estate venture and that you really want to get started. But moving too fast might get you in a heap of trouble. Bad deals can be really hard to fix. So learn to tread water before going off the high dive.

Related: Newbies: These 3 Simple Steps Will Prepare You For Your First Deal

Taking on Too Big of a Project

Don’t take on a burn out as your first rehab, and don’t buy a 30-unit apartment building as your first investment property. These types of projects are simply too complicated for most first time investors. Instead, pick up a single family home or two, which require minimal amounts of repairs. You’ll get your feet wet and learn the business as you go along. Plus, once you get in you may find that…

newbie-warning

You Might Hate Real Estate

Being a real estate investor is not a day at the beach. It can help you get to the beach more, but being an investor means running a business. Every day presents new problems and opportunities that have to be tackled, and win or lose, it is all up to you. Some folks thrive in this environment; others do not. The thing is, you can’t really tell until you do it. So start slow to make sure real estate is the thing for you.

Over Extending Your Resources

Don’t spend all of your money. Keep some for reserves. You WILL need it. Also, manage your time well. Expand slowly but surely, so you can learn the business and avoid burning yourself out.

Trying to Do Too Many Things

Some newbies want to do it all. They want to buy and hold, rehab, retail, wholesale, etc. This shotgun approach often causes a loss of focus, which in turn can often lead to failure. Again, start slow and focus your efforts. You are much more likely to be successful that way, and you can (and should) branch out later on after you gain some experience.

Trying to Make the Numbers Fit

Be very wary of trying to make the numbers fit. The numbers generally do not lie, and if they are telling you there is no deal, there is likely no deal. Don’t think that you have overlooked something. Don’t think that repairs and expenses will be cheaper. They will not. The formulas are tried and true. Believe them!

Someone Trying to Sell You a Dream

There are lots of so called “gurus” out there. Some are good, some are bad. Some you should listen to, some you should be wary of. Be wary of anyone selling you the dream of sitting on a beach. As I said earlier, real estate investing is about running a business, and at least at first you need to be very involved in it. Don’t fall for the hyped-up dream.

Someone Trying to Sell You a “Home Run”

So-called “home runs” in this business are few and far between. They are out there, and I have hit one or two, but doubles are much more common. You should be very wary of anyone promising a home run deal. It may very well be a home run, but ask yourself why is it being pitched to a newbie like you? Do your homework and run your numbers before you buy anything. Hopefully then you will hit a home run or two in your career.

Someone Who Says You Have to “Buy Now!”

You never have to “buy now!” Be it a property or educational information. Sleep on it at least. I find my mind really clears and I make much better decisions after 24 hours and a good rest.

newbie-wary

Someone Who Says You Have to Pay a Lot for an Education

I know of folks who have paid upwards of $70,000 for real estate education. And while there may have been some good materials in that product, $70,000 is just plain crazy. Sure, sometimes it is wise in my opinion to spend a little on educational materials, but many, many things can now be found for free or at least very cheap.

Related: Newbies: Before You Buy Property, Gauge Your Rental Rates. Here’s How.

Most Real Estate Agents

I may catch a bit of flack for this one perhaps, but it is true. Most real estate agents are simply not set up to work with investors. They really do not understand what we do or how we think about real estate. What many claim is a deal simply is not. Working with a real estate agent can be a good thing for some, but take your time and find one who understands real estate investors and will truly help educate you and help you find what you are looking for.

Being successful at real estate is a process of learning and doing. How long that process takes is up to you, but it generally will not and cannot happen overnight. Understanding that is often half the battle — and being persistent is the other half.

So you newbies out there, I know real estate is getting hot again, but please keep your cool. Take your time, learn and follow the advice in this post.

What else should newbies be wary of?

Please share your thoughts with your comments.

About Author

Kevin Perk

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

15 Comments

  1. Very concise and to-the-point article!
    I really like these points specially “jumping in rightaway” and “making numbers to fit”.
    Lot of times, people get overbid of a deal by these folks who needs to supplement the bad deal from the “regular” 9-5 job W2 pay or biting the bullet to a tiny long-term profit and hence missing out other good deals that comes in later on (bec they are over-leveraged or now afraid or wants to take breather etc.).

    The flip side is that “you need to take action”. There is no perfect deal that comes in at the right time.

    So, “start small” => Learn from experience with “focus” (don’t diversify yet unless it was a bad deal) => take a bigger opportunity and learn more at the same time => Diversify after a cushion has been built or margin of error is palatible…=> pass the knowledge to your children…

    Don’t go after every “shiny” object or trying to mimic someone else’s success (people don’t always advertise their failures or sacrifices they needed to do to achieve the success (giving up or starting late their family life, health/relationship deterioration etc.)). Do what is comfortable to you but push beyond it to “see further”..

    • Kevin Perk

      Austin,

      Nice follow up with some good advice.

      Good point about the perfect deal. It will never come along and you newbies will have to pull the trigger at some point and take a calculated chance. It is scary to do, but it get easier every time you do it.

      Thanks for reading and for the kind words,

      Kevin

  2. Great article! Love the bit about the education. It’s definitely worth going to some seminars and buying some material, but the beauty of the Internet is that pretty much anything can be found on here for free! 🙂

    • Kevin Perk

      Steven,

      Yes it is. I have been to many a seminar and bought many a product that have really helped me over the years.

      But you are right. The internet has really brought down the cost of information. Yet, there are still folks out there selling courses at exorbitant prices. Beware of those folks.

      Thanks for reading and commenting,

      Kevin

  3. Bolawa Fadoju

    Kevin,

    Insightful as always.

    As a newbie, I was almost sold on the various real estate seminars that you hear on the radio 24/7. Thankfully my partner (wife) and I took a step back and realized it wasn’t worth it. I can definitely say that the under $200 spent on books recommended by bigger pockets users, the various podcasts and articles from experienced entrepreneurs like you is worth more than those costly seminars would offer. (Thanks BIggerPockets!!!!)

  4. I always find it amazing when people spend several thousands of dollars on real estate education. I too have seem people spend $50-$70,000. My four year degree only cost me $40,000 and I was able to make $50,000 right out of college. Seems like a really good return on investment, much better than the expense of the course where most people do nothing with.

  5. Lari A.

    Excellent article! I’m a newbie who followed the crumbs dropped by several gurus who passed through Tampa over the past several months, and I’m currently making payments on REI classes that I’m taking on-line (which I do feel have been beneficial). I also am one of those who jumped in too quickly recently, because the gurus make Wholesaling seem so simple! But, I will continue learning this business, and I’m determined to do well. I truly believe that a major part of learning this business is to have a mentor, but the wealth of info shared on BP is priceless!

  6. Maggie Tasseron

    Many good points here, but one of my favorites is the one concerning real estate agents. I work with a very good agent at this time, but even though he and I have done something like 5 flip deals of mine together, with more to come, he never has found me even one property. I do all my own reno work and he has seen the before and afters of all my properties, so he knows what I look for and what I can do with it, but he never has taken the extra step to finding deals for me. It’s not that I need him for that, as the online MLS makes it completely simple, but I would have thought he might get first dibs on good flip properties for me regardless…

    • Katie Rogers

      Your agent is pretty typical. They never do much homework. They just want to open doors. Something really needs to be done about the commission system. In my neighborhood, a modest 3/2 house in need of rehab just sold for $1.1M. The listing agent gets to take home one-half of one-half of 6%, or $16,500 for almost no work or expense. This means 4 similar houses will give him the US median income after expenses. It used to be that agents needed to sell houses regularly (like 2 or 3 per month) to make a median income.

  7. John Oyedele

    As a someone who has just been introduced to this world, this article has proven valuable. BP is a great resource, but somedays it feels like I am drinking from a fire hydrant. Balancing the desire to jump right in vs fear of education paralysis is a constant struggle. I do have a plan written out with tangible actionable tasks and milestones so I am hoping sticking to that plan will get me to a place where I am ready to take the plunge.

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