The 6 Most Common Mistakes New Investors Make (Including Thinking It’s Easy!)

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After a dozen years in the real estate investing business, one thing I have learned is that mistakes will be made. I made some pretty good ones when I first started out, and I am still making and learning from them today. Mistakes are a part of life and are something we all have to learn to deal with. Looking back over the years, I see that many of these mistakes were actually good things, as they taught valuable lessons and offered even more valuable experience.

Newbies to this business are unfortunately more prone to making mistakes simply because of their lack of experience. These mistakes can cost them a lot of money and put a bad taste in their mouths for real estate investing. I have seen more than one person make a serious mistake that they really are never able (or want) to recover from. Hopefully this post can save some of the newbies out there from making a serious mistake that kills their dreams of being a successful real estate investor. There are many types of mistakes that can be made, but in thinking about it, they seem to fall into six general categories.

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The 6 Most Common Mistakes New Investors Make

Being Overly Exuberant

Many newbies are very excited to have discovered the world of real estate investing. They should be as it can change their lives. But this excitement can lead to an over-exuberance, which in turn can lead to poor decision making. Newbies will want to get started so badly that a mediocre or poor deal will begin to look good. Many will think that they just need to get their first deal and then things will flow from there. And while there is some truth to that statement, you cannot let your guard down and take any deal just to “get one done.” Rely on your numbers and intuition.

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Related: The Rookie Landlording Mistake Most New Investors Make

Being Too Trusting

Many first timers are simply way too trusting. The sad part of this business is the fact that you get to see a totally different side of people when dealing with tenants, contractors, and other investors. These dealings often leave us more experienced folks with a discerning eye and a fine-tuned BS detector.

I hate to say it, but you sort of have to come into this business thinking everyone is trying to get into your pocket and pull one over one you. Not everyone is, of course, but there are many out there who are. Always remember that if the story sounds too good to be true, it likely is. “Trust but verify” is a good mantra to use. Remember to get everything in writing and to be very careful about who you give your money to. It can be very hard to get it back.

Not Doing Basic Research

Most newbies understand that they have to run the numbers on any deal, but there is also some other basic research that can and should be done to prevent a potentially serious mistake. The internet has made this so simple now. Simply running the property and the seller through Google is one simple thing that may yield interesting results. You never know what you might learn.

Forcing the Numbers

Perhaps this is a bit related to item number one above, but I have seen new investors think that they can bend the numbers to their will. That they can force the deal to work. The thing is, they can’t. The numbers do not lie, and if they are telling you that a deal is not there, believe it is not there and move on. Sure, run your numbers again, look for mistakes, and even ask for advice from a trusted investor friend. But if the numbers still say no, then move on. Nothing will end your career more quickly than getting into a bad deal.

Underestimating Rehab Costs

This is a tough one to get an initial hold on. Underestimating a rehab can quickly lead to a busted budget and a quagmire. Rehabs can be very tricky and very complex. There are a lot of things that can be hiding and things that a newbie can easily miss. Your best bet when starting out is to find a simple, patch and paint rehab. Otherwise, be sure to get estimates from trusted colleagues or from contractors. Again, if the numbers do not work or if you are just not confident on the costs, move on to the next deal.

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Related: The Top 3 Real Estate Investing Mistakes I’ve Made (& What I Learned)

Thinking Real Estate Investing is Easy

Real estate investing is not easy. There is no simple, clear cut formula that will bring you instant success. Do not believe what many of the gurus say, and do not be so quick with those credit cards to purchase the dream they are selling. That is all it is: a dream. I can assure you that you will quickly get discouraged and end up thinking real estate investing is a scam. Yes, some education is absolutely necessary and I have bought my fair share of courses over the years. But I have found that you have to work with these courses and tailor them to your own specific needs and circumstances. If it were easy, everyone would be doing it.

Everyone will make mistakes. You will too, no matter how hard you try not to. I hope those mistakes will be small and end up good learning experiences. I know I’ve sure made plenty. Some were even pretty big. But the moral of the story is that we survived and learned from them. You can as well. But let’s try our best not to make them in the first place.

Care to share a mistake you made (and learned from) when you were starting out?

Please leave a comment.

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.

20 Comments

  1. karen rittenhouse

    And listening to the seller.

    It’s so easy to get caught up in the seller’s problems. Then you end up paying too much just to help them out.
    Remember, you didn’t create their problems and, if you don’t stick to your true numbers, you’ll pay too much and end up losing money.

    Know your numbers and Stick To Them!!!

    • Kevin Perk

      Karen,

      I agree. it is very easy for newbies to get sucked in. They simply have not built up that “resistance” us more experienced folks have. Sticking to the numbers is very good advice!

      Thanks for reading and commenting,

      Kevin

  2. Darren Sager

    I think it’s best if a newer investor can team up with someone more experienced starting off that way they can get a better understanding of the ins and outs of with less risk. They may make less at first, however the experience can be all the difference between making money at it and not. Hopefully their experience can really help when it comes to figuring out real world costs in your area.

    • Kevin Perk

      Darren,

      Yes, teaming up with someone more experienced is optimal. If this is not possible, asking anyone and everyone you know who has even a hint of experience in real estate or rehabbing what they think about your numbers is a good idea as well. I can remember asking friends, neighbors, relatives, etc., what they thought. Some of the advice was good, some not so good. But it got my wheels turning and putting things under a microscope so to speak really helped me out.

      Thanks for reading and taking the time to share your advice,

      Kevin

  3. Mikael Winkler

    Great post. I am essentially the newbie you’re speaking of. I am looking to make my first investment in the near future. I definitely plan on being calculated and cautious in my approach, but I also don’t want to fall victim to “analysis paralysis”. Do you have any advice on finding a middle ground?

    • Michael Volek

      Mikael I think we are in the same place. I’m ready to purchase my first property, but I’ll be going overseas soon. Our situations differ a little bit, but one that I found that gave me an extra sense of security was looking into buying a 2, 3, or 4-plex—to be able to live in it as I rent it out, and repair/rehab one unit at a time, if needed. Obviously take the calculated and cautious approach like you say and trust the numbers. By the time the plex is upgraded, it will be time to refi and repeat. I’ve heard many guests on the BP podcast say this is an excellent way for newbies like us to step into the game. I just wanted to share this with you and I hope you have plenty of success in your future. Anyone else please tell me if I’m incorrect.

  4. Aaron Esquivel

    Today I took a huge step, I finally decide to learn more on Real Estate Investing. I’ve being thinking in real estate investing for the longest time. I have being reading article after article on biggerpockets.com. I love it. Thanks everybody for all your tips!!

  5. Daniel Nolan

    HI I’m a long term newbie reading and studying all the great posts that relate to my goals. Do to my older age , my horizons require immediate actions. For the past 2 months I’ve been direct mailing yellow letters to selected areas within a 1/2 hour of my home. While the effort has yet to produce a deal for me, the experience of talking and negotiating with sellers is invaluable and very promising! Just taking serious action is opening up all sorts of possibilities which I know now will lead me to deals.
    I’m looking for:
    1.owner financed transactions for rent to own (lease options), 2.the elusive wholesale opportunity and 3. potential quick fix and flips for which I’ll need investor partner. The Thing is I discovered what ” taking action” feels like
    and how promising the future looks, no matter how short my horizons is.
    While I do have a mentor at last, I consider the posts of Bigger Pockets contributors an invaluable companion to my late stage development as an investor.
    I hope those of you suffering analysis of paralysis as I have, will simply step of that curb and just get moving. The experience may seem uncomfortable at first but the opening up of a whole new world of possibilities will be invigorating. The more you fail and get up , the closer to success you get. I tell my self this every day!

  6. JD Wolfrey

    Daniel Nolan. It is motivating reading comments such as yours and to me your post is more motivation than the pros on a certain level. What I mean is that to look at a older gentleman and listen to their advice is proven that PROCRASTINATION IS THE ASSASSINATION OF MOTIVATION. Just as you said just “get moving”, whether you need to start educating yourself or get the deal under contract just get something done. as well as you mentioning the experience may be uncomfortable, I was taught by a sales organization, GET COMFORTABLE BEING UNCOMFORTABLE. All these help newbies such as me to avoid stalling out.

  7. If time is money then I have definitely underestimated the cost and order of rehabs.
    The money spent out of pocket it seems is only the symptom of a problem and the time taken, lost on other projects, or wasted in poor scheduling is the disease. The money that is cost by not having rehab complete when somebody wants in. The corners that are cut because of time and not even cost.
    Could have paid more for help and rented the house sooner and paid the help out of sooner money!!!

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