With the real estate market improving in many areas demand for real estate is on the rise. It seems that anyone who has ever watched a home flipping show on TV thinks they can make money in real estate. While the business is certainly open to anyone that doesn’t mean it is easy. If you are not careful you can make poor decisions that will set your business back months. Even though education for new investors is at an all-time high there are still a few common mistakes that are made. Sometimes knowing what not to do is as important as knowing what you should do. Here are five common investing mistakes you need to avoid.
- Unrealistic Expectations. For many new investors what they see on TV is a glimpse of how their business will go. It is important to understand that your favorite investors spent years building up their network and local contact base. Every deal they receive today is a byproduct of all the hard work they put in. As much as you may want to be a million dollar investor this is the exception rather than the norm. There is a learning curve that almost every new investor experiences. If you are not willing to put the work and time in you will not get the results you are looking for. When you are just starting out you need to remember that the business can be a grind and deals will not just fall on your lap. If you think that everything will be easy and you will retire in a few years you will be greatly disappointed.
- Planning On The Fly. How do you plan on investing in real estate? Do you want to focus on rehabs and flips or are you looking for long term buy and hold properties? Do you have a specific market you want to focus on? Do you know how you will finance your deals and how much available capital you have? One of the biggest mistakes that new investors make is thinking they can just plan as they go. This is the exact opposite of what you need to do. When you buy an investment property there should be little to nothing that is unknown. The worst thing you can do is be hit with an unexpected expense or repair that changes everything about the deal. By scrambling around to every new listing that hits the market you will end up accomplishing nothing. Without the experience of making quick decisions in real estate the odds are you will make a poor one. Always map out as much as you can prior to even looking at your first property. A little extra time before you get started can save you time and money down the road.
- Rushing Into Deals. It is human nature to want to jumpstart your investing business as quickly as possible. As difficult as it may be you need to wait for the right deal as opposed to the next deal. Getting involved in the wrong deal sets off a spiral of negative events. You will work twice as hard for half as much profit. This will frustrate you and push you to take on the next available deal to make up for lost time. Patience is one of the most important traits that any investor can have. There is a fine line between waiting for the perfect deal and knowing when to walk away. As long as you know everything about the deal, property and market you can comfortably make your decision. It is when there is too much unknown and the risk exceeds the potential reward that gets you into trouble. Taking quick action is fine as long as you understand what you are getting into.
- Not Knowing Numbers & Estimates. Numbers are the backbone of every real estate deal. Many new investors get caught up in emotions rather than focusing on the raw data. As obvious as it may seem it is imperative that you know and understand all of the numbers involved in the deal. Start by understanding the cost of your financing. How much is the deal going to cost you and how quickly do you need to pay it back. If you are rehabbing you need to know your carrying costs and if the numbers you are using are realistic. What you may want to sell or rent the property for may not always be in line with reality. If you don’t understand an aspect of the deal you need to ask your lender, real estate agent or attorney. One oversight with the numbers will completely change the transaction.
- Ignoring Lead Generation. How do you plan on finding new deals? If your goal is to let your real estate agent find new deals you may have a difficult time. Even the best real estate agents have competition when new listings hit the market. If the deal is really juicy it will be on and off the market in a matter of days, sometimes even hours. This could leave you stuck without any new deals to work on. You need to find ways to constantly keep your pipeline filled. This doesn’t mean you need to break the bank on marketing but you do need to find something to get your phone to ring.
There is plenty of opportunity for success in the real estate world. As you focus on what you should do you also need to recognize the major mistakes you should avoid.
