Real Estate Investing: 5 Mistakes to Avoid

Real estate investing can seem challenging to new investors who don’t know where to start.

My husband and I have always been interested in real estate investing and considered it to be an ideal path to financial freedom. However, it took us several years before we started. We didn’t want to rush into an investment without due diligence and without conducting adequate research. We also had the newbie fear of losing money. The truth is, real estate investing comes with ups and downs, but there are a few mistakes you should avoid to position yourself for success.

1. Thinking It’s Easy

Influential investors on social media and even the “Flip or Flop” TV shows portray an image of real estate investing that suggests it’s easy; buy a house, renovate it, sell it, and cash in on a huge profit. Many newbie investors attend inspirational seminars and walk out immediately motivated to buy their first property and start receiving inflows of money. However, the wrong expectations can prove to be detrimental to a new investor. When reality hits and the magnitude of the work and risks involved is apparent, it is easy to get instantly discouraged. Before you decide to invest in real estate, you must recognize and accept that it will take hard work, a lot of research, and time to build a cash-flowing portfolio. Understanding this critical concept will prevent you from setting yourself up for failure.

2. Poor Planning

Another mistake new investors make is to jump right into the game and start looking for “cheap” properties. The error here is in assuming that the only factor to consider is the price of a property. Contrary to that assumption, several factors determine when a property is right for you.

Before you begin investing, you need to have a plan and identify your strategy. Is your focus to wholesale, to buy and hold (rent), to flip? What neighborhood are you targeting? What is your target return on investment (ROI) or return on equity (ROE)? What are the characteristics of your ideal property? You need to know the answer to these questions, and the best way to start is with a business plan. A business plan forces you to identify a strategy and determine your short-term and long-term goals. This strategy will help you to remain targeted and focused when searching for ideal investment properties that fit your criteria.

3. No Research

It is impossible to make sound investment decisions with insufficient information. You should research your target market and keep abreast of current events and economic conditions. This information will allow you to predict trends, capitalize on opportunities, or make strategic adjustments to mitigate risks.

4. Inaccurate Analysis

One of the biggest mistakes an investor can make is to buy a property at a price that is too high. An overpriced property can become a money pit. If it’s a rehab property, you may not be able to recoup your purchase and renovation costs when you sell. If it is a rental property, your income may not cover your expenses. The main reason investors buy too high is because of inaccurate or insufficient analysis. Never purchase a property based on emotions and never compromise on the numbers. Also, don’t make assumptions. It is easy to convince yourself of what a property is worth when you want the numbers to work. Regardless of what you think, the analysis should speak for itself. Conduct an in-depth analysis of each property before you buy, because if you are buying too high, you are setting yourself up for failure.

5. Taking Shortcuts

There are two ways investors make this mistake. First, they fail to select the right people to do the work. For instance, they go with the cheapest contractors and end up getting burned in the process. A contractor who does subpar work or who delays the job can cost you thousands in the long run. Second, they fail to seek professional help for things they should not do themselves. If you are seeking financing through a financial institution, you may not need to hire a lawyer. However, if you are paying cash, it may be worth it to have a lawyer review your purchase contracts and title commitments. Don’t take shortcuts. Instead, take the time to find and spend the money to hire the right people.

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