5 Popular Real Estate Investing Mistakes You Must Avoid
By Paul Esajian on September 7, 2018
Every investor starts with high hopes and expectations of wild success. If you have closed a few deals early in your career these are only ramped up. The reality is that while there is no limit on your success, it is often much more difficult than anticipated. The business you may have seen from a far on TV or from a friend or family member is not always easy. On almost every transaction there is a bump in the road or an obstacle you need to get by. There is truly no such thing as an easy, straightforward transaction. Additionally, you are going to stub your toe and make some mistakes that will only make things more difficult. The key is to learn from your mistakes and only make them once. Here are the five most common investing mistakes you need to avoid.
- Unnecessary risk. There is risk associated with every deal. However, some deals carry more unnecessary risk than others. With any deal you are involved in the expected return must be in line with the risk. You never want to waste time, money and energy on a deal where the return is not worth the outlay. This doesn’t mean you will find 100% risk free opportunities. If you are looking for that you can make 2% with your local bank. Often you can avoid risk simply by doing a little research on the property and the deal. There are many investors who get involved with bad deals because they don’t understand, or know, what they are walking into. When they do finally realize what is going on, it is often too late. To successfully invest in real estate, you are going to have to take some calculated gambles, but you need to know where to draw the line.
- Bad partnerships. There are a handful of key relationships, and partnerships, that will help grow your business. As productive as a great partnership is, a bad one can be equally as damaging. When most investors think of partnerships they think of equal business partners. This is certainly a big aspect of the business, but you also partner with your real estate agent, attorney, contractor and anyone else that you find and work on deals with. If your real estate agent does something unscrupulous with an offer it will be an indirect reflection on you. The same is the case if your contractor loses it at town hall on one of your properties or if your attorney has unethical practices on one of your deals. You should never blindly dive into any alignment or partnership until you know who you are dealing with. A wholesaler can make any property sound like you are getting a steal, but it may end up being too good to be true. Before you get too far with any potential business partner or relationship take some time to know what you are walking into.
- Lack of education. Regardless if you close a deal a year or a deal a month you need to be in touch with what is going on in the real estate business. Things in real estate can change dramatically in just a short period of time. A trend you followed in January can be obsolete by the end of the summer. Staying on a trend too long can cause your business to be stuck in the mud without much of an explanation as to why. It is essential that you take some time every day to keep up on your education. This can be something as small as reading a blog, or a little more intensive like going to a local meeting. It can be reading a book or going to a live seminar. However you learn best there is a something for you to do daily. There is so much information and education available for you to take advantage of it is a shame if you do not.
- Poor deal analysis. Not every deal is going to be a home run. In fact, most deals are not going to break the bank. If the risk doesn’t match the return it is ok to pass and wait for the next one. Where many investors get in trouble is by making the numbers fit what they want. On every deal you need to establish, and follow, a system to analyze each aspect of the transaction. Go into each one with an open mind and understand that if the deal doesn’t make sense you need to move on. You don’t want to need everything to break right in order for the deal to be a success. Understand what you are getting into and learn to break down the deal line by line.
- Poor spending habits. There is an old saying in finance that it is not how much you make but rather how much you keep. You can keep your pipeline filled with closings, but if your spending is poor it doesn’t make a difference. Eventually you will get defeated by not having anything to show for all you hard work. Getting a nice check at closing doesn’t mean you hit the lottery. Even though your checks are going to be much bigger than your payroll check, you still need to treat it as such. Pay any expenses associated with the deal and think about expenses for business growth. As difficult as it can be, always pay yourself last. Spending your profits like a drunken sailor is a quick way to get your business in trouble.
Knowing what to avoid is a key in any business. You are going to make some mistakes along the way, just don’t make the mistake bigger than it has to be.