10 Mistakes to Avoid as a Real Estate Investor

Obviously, there are more than 10 mistakes you can make, but these are 10 crucial mis-steps to avoid.

1. Failing to learn the real estate investing basics. Go to the local library or bookstore, join your local REIA, spend some money on boot camps and seminars, or study at home on your own. No matter how you go about it, there’s a lot of opportunity to pick up the fundamentals. Plan now to prepare a good foundation from which to grow.
2. Not having a plan. Many potential investors are not sure what they’re looking for, not really sure what they want to do, but believing that buying real estate is a solid way to invest in their future. They’re not sure how to get started, they don’t know whom to ask, they don’t know what to buy or which strategy to use. What they have done is watched a lot of neat TV shows and decided they want the success. Truth is, it’s always about having a plan. We have everyone start by writing their goals and, together, we determine steps to achieve them.
3. Having a stock market mentality. Our real estate approach is long-term investing for the future, true wealth building. You don’t get in when you feel good about it and get out when things get a little rough. Real estate will always go up and down. You must think of real estate investing for the long term. Flipping properties is a job and is not investing. Plan to sit tight; put your money into properties and leave it there for a long time.
4. “Get Rich Quick”. This is not a “get rich quick” business. Fix and flip is only a small part of the strategy to grow your long-term investment portfolio. Nothing beats allowing someone else to pay off your note while you collect rent and positive cash flow every month. And, the tax benefits are huge as you build wealth over time. Never gamble on appreciation; don’t speculate with the future.  Focus on cash today, buying properties that cash flow now. Eventually, when your houses are paid off, that full rent is your cash flow and you will have created amazing wealth along the way.
5. Quitting your day job. A lot of investors are tired of their J-O-B. They’re ready to quit their day job to get into real estate investing full time.  Wait before you quit.  You’ll acquire assets that will be paid off by someone else, that will go up in value and that will create cash flow each and every month, forever. Starting out, it’s very difficult to replace an entire year’s income from cash flow of only $200 per property per month. Until you’ve built your portfolio, use this as an investment strategy, not as a way to immediately quit your day job.
6. Not having an exit strategy. As an investor, you must determine how, why, and where you plan to invest. You must know which exit strategy you are going to use – selling, renting, leasing, owner financing, partnerships – for each property before you buy. You’ll buy specific neighborhoods based on your exit strategy. The concentration of effort and focus will save you a tremendous amount of time, energy and money.
7. Lack of cash. Banks are not as open to us as they once were. Do you plan to start using the bank’s help, SBA loans, lines of credit, and/or home equity lines on your own home? Unless you already have funding in place, you’re going to have a hard time getting it. Today, investors are turning to partnerships with others who have cash, using 401k’s or self-directed retirement accounts. We’re using a lot of strategies that, a few years ago, people weren’t thinking about. If you don’t have cash to get started, consider partnerships. You need someone who believes in you and your ideas and understands why you’re doing what you are. The current market offers incredible pricing, but there’s a financial crunch affecting who can and cannot get involved seriously with real estate. Today,  a lot of purchases require cash.
8. Waiting too long to get started. We have a 25 year old student who holds 7 properties. His exit strategy is to own 20 to 25 properties by the time he’s 40 years old and to have those properties paid for. At that time, his plan is for his income to average $20,000-$25,000 per month. Moral is, don’t wait to get started in real estate – buy real estate and wait! The prices we’re seeing today won’t be around forever. If you don’t buy now, in 5 years you’ll be sorry you didn’t!
9. Understanding renovation costs. Two big mistakes made by new investors: (1) Thinking a renovation is going to cost a lot less than it actually is. Grossly underestimating the cost of a rehab is common.  (2) Having an accurate budget. “Newbies” tend to get personally attached and, next thing you know, what could be a laminate becomes hard-surface, updated fixtures and brand new appliances go where they don’t need to, little things start adding up and, before you know it, you’ve blown the budget. It goes back to having a mentor, someone you can bounce plans off, someone who holds you accountable.  Once you determine that cost estimate, mentors don’t allow you to go over budget but help keep you in line.
10. Going it alone.  To be successful in any businesses, you need a mentor. Real estate is no different. A mentor is someone who’s successfully been there before you, someone you trust, someone who agrees with your business philosophy.  You will pay for your education one way or another. Having a good mentor lead and guide you will pay off in big profits.

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