With any business, the goal should be to constantly take incremental steps forward. If you can scratch out even a small profit on every deal you will ultimately be ahead of the game. As a real estate investor, you are faced with a handful of important decisions daily. Without even knowing it at the time these decisions shape not only your day to day activities, but the long-term course of your business. Just one false step can lead you on the wrong path that can be difficult to get out of.
While there is value in learning from your mistakes, it is always better to learn from others rather than make them yourself. Catching yourself before one big misstep can literally save your business or at least keep it on the right path. Here are five real estate investing mistakes you should avoid at all cost.
- Rushed partnerships. A common theme in all these mistakes listed is hurried decisions. We hear all the time that business does not wait for anybody. While this is true, it doesn’t mean you need to blindly jump at every opportunity that comes your way. There is a balance between doing your homework while still acting in a prompt manner. Almost every new investor is offered the opportunity to partner up with someone along the way. This could be on a one-off deal or something more long term. As you will see, a partnership can catapult your business to new heights. However, the wrong partner can sink it quicker than the titanic. You will throw time and money at a partnership that doesn’t produce any results. You will not only be frustrated, but you will end up right back at square one, without any assets to show for it. Partnerships are great, if you are in the right one.
- Lazy due diligence. One of the items you don’t see on TV is just how hard you need to work to get a deal. Even if you have been in the business for decades, it can still be a struggle keeping your pipeline full. When a new deal does come along it is easy to dismiss it or make assumptions. The reality of real estate is that you will work hours on deals that ultimately don’t produce a return. As frustrating as this can be, it shouldn’t influence your future actions. Every new deal that comes in must be vetted in the same manner. You need to go down your checklist of diligence with the same vigor. The minute you let your foot off the gas and get lazy you will run into trouble. All it takes is one oversight either with the property, the contract or the deal to set things in motion. It is nobody else’s responsibility but yours to do your homework. Never trust what the seller, your real estate agent or a wholesaler says. Lazy due diligence directly leads to big problems.
- Avoiding partnerships. I know, I know. Just a few lines earlier I said that you shouldn’t rush into partnerships. That being said, it doesn’t mean you should avoid them. It is unfortunate, but we live in a skeptical world where we sometimes think the worst of people. We hear stories about bad partnerships and avoid them at all cost. You should avoid rushed and negative partnerships but embrace strong ones. If you do your homework and you and your potential partner are on the same page about everything, certainly dive in and get started. The right partnership can literally help your business grow stronger and faster than anything you can do on your own. When opportunity presents itself, you need to be willing to embrace it and run with it. If you are constantly skeptical and apprehensive about every opportunity you won’t get very far.
- Avoiding worst case scenario. As we stated, there is always a fine line between diligence and paralysis by over analysis. Of course, you need to take your time and know what you are getting into, but you still need to act. A common problem for many investors is getting into deals assuming everything will break right. Instead of being cautious, they are overly optimistic and think nothing bad will happen. While most of the time they are right there is still a chance of the unexpected. When the unexpected does happen, you need to be able to quickly respond to whatever comes your way. You don’t need to be so negative that you only think about the worst-case scenario on every deal, but you do need to consider it. At least play out these possibilities and think about what you would do if they happen.
- Cutting losses. If you watch enough real estate shows on TV, you will think every deal has a happy ending. 90% of the time this is true, but what you do in the 10% that don’t impact your business. There are deals where you simply cannot make a profit or make the profit you initially anticipated. Instead of throwing good money after bad you need to cut your losses and move on. This takes a good amount of discipline, but it is essential for a healthy business. A small loss you can quickly recover from. But a making the problem worse will bleed you from necessary capital you will need on future deals. It is ok to cut your losses and move on.
Mistakes are part of any business. You can learn from small mistakes, but big mistakes will wipe you out. Avoid these five mistakes at all cost.
