I work with many types of real estate investors — people who want to buy their first investment properties, investors who want to grow their property portfolios and first-time homebuyers who realize that even their homes are investments in their financial futures. My conversations with these investors have revealed the following as eight of the most common real estate investing mistakes, which can be avoided with smart preparation and diligent research.
1. Not Starting
For most people, not starting is the common enemy. There are many things that get in the way: lack of confidence, lack of knowledge, fear of losing money and fear of failure, to list a few. You can never succeed if you don’t take the first step. It is okay to be afraid. But not taking the first step means losing opportunities and not achieving the financial success you’ve dreamed of.
Know what success looks like to you. More importantly, know what it means to you. This is your driving force. Take that first step!
2. Jumping Right In Without Proper Planning
A common piece of advice I see in many books and investing articles is: “Just start. What are you waiting for?” There’s some wisdom in taking the leap, but there’s a distinction between jumping in unprepared and starting with a proper plan and strategy. The age-old adage “Look before you leap” is very apt here.
Have a plan. Don’t merely rely on luck and on winging your way through it.
3. Trusting Everyone
Real estate investing is a topic covered extensively online. My biggest challenge was to figure out who I could trust, especially when I didn’t know a lot myself. There are so many “gurus” and experts out there — but do they have a sound strategy? Do they have a good track record? Or are they pushing an expensive system with a risky strategy? Ask many questions and be cautious about who you place you trust with. Only follow advice from people you can trust.
4. Following (Only) Your Gut And Getting Emotionally Attached
It’s easy to get emotionally attached to an investment. Gut feeling and instinct play an important role in real estate investing, but so does data. In the words of Edward Deming, “Without data, all we have is an opinion.”
There is so much information that can be analyzed: market data, neighborhood data, demographic data, trends, property data, cash flow, rental projections, etc. This is data that can accurately predict trends for you. Think intuitive right brain versus logical, analytical left brain: Neither side is better. Balance it out and get the best of both worlds. Use data to stay grounded. It can help you ensure that you are making a good investment.
5. Trying To Do Everything By Yourself (Who Needs A Team?)
Real estate investing is a team sport. I cannot stress enough the impact a team can have on an investor’s success. A great real estate agent will help you find a terrific property at a fair price. A great mortgage broker will ensure that you get financing at a good rate. A great real estate investment coach will help magnify investment success. A complete team also needs a lawyer, property inspector, tax accountant, property manager, contractor, stager, interior decorator, real estate photographer, architect and more.
Remember that a team is stronger than any one member. Surround yourself with an army of experts. It often is the difference between success and failure.
6. Failing To Learn The Basics Of Real Estate Investing
Many people buy their first or their second property without really knowing much about real estate investing. I should know — I was one of those people. On the surface, investing seems simple: Get approved for a mortgage. Buy a property. Find a tenant. Done. The problem is that experience can be expensive. If I could go back and redo some of my early investments, I’d be much further ahead today.
Knowledge is power. Learn as much as possible from others. Avoid having to learn by making the same mistakes. As Warren Buffet has said, “The best investment you can make is an investment in yourself … the more you learn, the more you’ll earn.”
7. Overspending On Renovations
Whether an investor buys a property to flip it or to rent it out, I’ve noticed that it’s very common for them to overspend on renovations. In some cases, it happens because the renovations go over budget. In many cases, it’s because there wasn’t a clear plan or budget. But most of the time, the investor willingly overimproves their property. They fail to analyze the impact the renovation will have on appreciation and cash flow.
Don’t spend on renovations that won’t benefit you! Do your due diligence to understand what adds value and what doesn’t.
8. Not Knowing When To Be Patient And When To Be Aggressive
It’s important as an investor to recognize a deal when there is one and to make a decision quickly before someone else does. One of the best investments I ever made was a house I visited at night with a flashlight so that I could make an offer that same night. What many don’t realize is that I had been watching the market for months before jumping on that opportunity that I couldn’t resist.
It can often be difficult to assess when patience is required and when to jump in. Use your data and your gut — but most importantly, be alert. Know how to balance being patient and taking action to achieve the best outcome.