Interested in real estate investment? Or maybe you are already an investor and wondering why you are struggling? here are the 10 common mistakes when starting out in real estate investing:
- Not learning the basics.
When you’re starting something new, including real estate investing, there are easy ways to learn the basics. You can go to the local library or bookstore, join the local Real Estate Investors Association (REIA), spend money on boot camps and educational seminars, or study online on your own. No matter how you go about it, there are plenty of opportunities to learn the fundamentals of real estate investing. The most successful investors study and establish a good base from which to grow.
- Not having a plan.
I often meet new investors who aren’t sure what they’re looking for, they don’t really know what they want to do, they just believe real estate investing is a solid way to invest in their future. They don’t know where to start, they don’t know who to work with, they don’t know for sure what to buy or what strategy they are going to use. What they did was watch “fix and flip” TV shows and decide that they too want success. However, to be successful, you must have a plan. Start by writing down your goals and determining how you will achieve them.
- Have a short-term view.
Real wealth creation requires long-term investment. You can’t create real wealth by going in when you feel good and going out when the going gets a little tough. The real estate market always fluctuates – up and down – so investing in real estate for wealth must be for the long term. Renovating and reselling brings fast cash for today, but wealth requires you to invest your money in properties that you will own for a long time and that will generate continuous income forever.
- “Get rich quick.”
Refer to error number three. This is not a “get-rich-quick” business. “Fixing and reversing” the way you see on TV is only a small part of the strategy for growing your investment portfolio. You will find that the tax benefits on holdbacks (rental properties) significantly increase your wealth buildup over time. And nothing beats letting someone else pay your bill while you’re collecting rent and positive cash flow every month. It’s not about getting rich quick, it’s about building wealth forever over time. Eventually, when your homes pay off and the total rent builds up your cash flow, you’ll find that you’ve created incredible wealth along the way.
- Quit your day job.
Many newbie investors are tired of their job. They’re ready to move on, quit their day jobs and get into real estate investing full time. We understand that! But wait until your real estate business is generating revenue before quitting your W2 job. You are acquiring assets that will be paid for by someone else, increasing in value and creating cash flow for you each month. It is, however, very difficult to replace an entire year’s income from just $200 per month of rental cash. Real estate is an expensive business. So until you’ve built your portfolio, use it as an investment strategy, not a way to immediately quit your day job.
- Not having multiple exit strategies.
When buying a property, you need to have at least three exit strategies in place. Maybe you plan to renovate and resell quickly. What if it doesn’t sell? Are you able to put a tenant in it and hold it? Maybe you can sell it without renovations for a lower but faster profit to another investor (wholesaler). If you’re locked into a single exit strategy when buying (“I need to renovate and resell quickly”), you may find yourself in a sore corner. Before buying, determine how many and what exit strategies are possible for the property. Always have a backup plan in case option number one doesn’t work.
- Lack of cash.
Lack of money can really slow you down. And banks don’t like to lend for speculation. A great source of funds, and something you absolutely need, is investment partners with cash. Money doesn’t always mean a bunch of greenery. It’s money in CDs, money markets, 401k or IRAs; it’s in areas that sometimes we don’t think about.
- Not understanding renovation costs.
Two main renovation mistakes: first, grossly underestimating the cost of a rehab. Over time, you will be able to walk into a home and estimate repair costs. You’ll also learn neighborhoods, know exit strategies, and know your personal plan from the moment you enter a property. But it takes time to learn. Second – don’t stick to a budget. Maybe you are starting a property with a fairly specific budget. However, once you step into it, you become personally attached, and next thing you know, the planned laminate countertop becomes Corian. Or, what could be a laminate becomes a hard surface. You install updated light fixtures where you don’t need them, new appliances where they aren’t needed. The little things start piling up, and pretty soon you’ve blown the budget. What’s needed is a mentor, someone you can share your ideas with, someone who holds you accountable. If you set that original cost estimate for the job, mentors don’t let you go over budget, but help you stay in line. It is important.
- Waiting too long to start.
We knew a 25-year-old who owned seven properties. His exit strategy was to own twenty to twenty-five properties by age 40 and have those properties paid for. His goal was to earn an average of $1,000 to $1,200 per property per month. Pure profit. Minus a few expenses, he was performing very well at a very young age. The moral is, don’t wait to get started. If you don’t buy now, in five years you’ll regret waiting!
- Go it alone.
To be successful in almost any business, you need a mentor. Real estate is no different. A mentor is someone you work with, someone you trust, someone who agrees with your business philosophy. Having a good mentor to lead and guide you will reap big rewards. Never be afraid to ask for advice. It is not necessary to learn on your own. Know when to seek out an expert and track their expertise. Bringing in someone with more expertise will save you from making big mistakes. Going it alone can be very, very expensive. Surround yourself with like-minded people who can guide you down the path to success.
Obviously, there are more mistakes to be made when investing, but we consider these 10 crucial mistakes to avoid. I hope you can learn from others here so you don’t need to repeat them.
Do you find this useful ? What can you add to the list?