Anyone can get started in real estate investing, but how can you increase the chances for success? The volume of advice available to novice real estate investors can be daunting and, instead of teaching you how to be successful in real estate, it can cause confusion. Applying a few simple tips and taking advantage of the experience of others can help you avoid common pitfalls of real estate investing and become a more educated investor.
Real Estate has been very, very good to me… AND there are some important lessons I’ve learned along the way. These are big picture lessons.
- Not having a plan – Many new Investors make the mistake of buying a property because they think it’s a great deal, and then try to fit it into their plan, putting the cart before the horse so to speak. Start with the end in mind as this often leads to greater success.
- Thinking you can do it all on your own – Buying property is a complex process. If you plan on reselling it or renting it out, it becomes essential that you have a professional team. It’s imperative that you have some key team members in place before you start investing.
- Believing the infomercials that say it’s easy to become a Multi-Millionaire overnight with real estate – Not overnight, but if you start NOW you will get to the finish line much sooner. If it sounds too good to be true, most likely it is.
- Not doing your due diligence and ground work – Not doing your homework can cost you a lot of money. You must know the fundamentals and have the tools. I don’t want you to get paralyzed by analyzing, but you must have the right tools and team members to make an informed decision.
- Shopping without financing – Being pre-qualified or having a money source does several things for you: gives you a general idea of how much you can afford, allows sellers to take you and your offer seriously, limits how much risk you take and gives you the confidence to make a decision.
- Falling in Love with a property for all the wrong reasons – As an investor, the only good reason for falling in love with a property is the numbers. The property also needs to fit your plan, have more upside potential than issues and will help you meet your goals. Don’t let emotion drive your decision. That’s what “HOME” buyers do, not professional real estate investors. You are buying the numbers.
- Paying too much – Once again, don’t let your ego or emotion drive what you pay for a property. If you use your tools and resources, you’ll know what the top dollar is that you can pay. Don’t go over that amount – walk away, there is another deal out there waiting for you.
- Miscalculating the numbers – When I teach class we spend a lot of time on calculating profit and/or cash flow. We have DEAL Trackers for our students that use simple formulas. Then use your professional team and get the projections of cost and cash flow down to the penny. It can be very simple if you understand all the costs and have the right tools. One thing we don’t want is an asset turning into a liability.
- Looking for the ONE big deal – A larger volume of deals helps increase the total profits and reduces the risk. A lot of new investors think that the more expensive the property the bigger the profit – sometimes that’s just wrong.
- Not having a Plan “B” – Having more than one option for the property is the wisest strategy. This is how to be prepared for unforeseen fluctuations in the real estate market. Having an alternative plan helps cut down on losses and handle unexpected situations.
- Not reading the fine print – Understand what’s really in any document before picking up a pen. Get the documents in advance, take your time reading them and ask questions. Get copies of your closing and mortgage documents a few days ahead of closing. These are legally binding documents. It’s important to believe in the professionals you deal with but where does the buck stop? Be informed.
- Under estimating the cost of rehab – As a simple rule of thumb, double the time and cost of rehab and if there is still a profit –you’re closer to ensuring any unforeseen issues where you might lose money.