5 Common Areas New Investors Struggle With
By Paul Esajian on September 27, 2016
Navigating the real estate investing waters isn’t easy. This is especially the case as you are just starting out. As exciting as a new career may be there are a few essential items you need to have in place. Without these items you will be left wondering why you are not having the success you anticipated. Taking some time to organize your business before you get too far is often times the best thing you can do. Instead of going from deal to deal without a plan you can hit the ground running. Here are the five most common areas that new investors struggle with.
- Not Having A Plan. Whether you are looking to buy one property a year or one a week you need to have a firm plan in place. Investing in real estate is very much like any other business. You need to have an idea of how you are going to generate leads, handle the finances and keep things moving forward. Where new investors struggle is bouncing around from market to market without an end goal in mind. They may have seen a rehab show on TV and think that anyone can do it. While anyone technically can buy an investment property not every investor is going to be successful. Before you even sit down with a real estate agent you need to know where you want your business to go. Start by making a list of long and short term goals. Next, make an action plan and a list of who you need to help you. Finally, asses how much capital you have or how much you will need. Without a plan you are bound to fail.
- Not Following The Numbers. Most new investors think that intuition is a big part of finding deals. The reality is that your gut has very little to do with your success. The single most important factor in any deal is the numbers. If the numbers don’t make sense you need to walk away. Of course, this is easier said than done. It is not easy walking away from a deal you have had your eye on for weeks. It takes a good amount of discipline to walk away and wait for the next deal. It is this discipline that often makes all the difference. Investing in real estate is about making a profit. You are not judged on how many properties you accumulate. All it takes is one bad deal to set your business back months. If the deal is poor enough it could be too much to recover from. Before you make any decision you need to arm yourself with as much information and data as possible. You need to know and understand the numbers and what they mean. If you follow the numbers all the time you greatly increase your chances for success.
- Not Having Enough Resources. Every successful investor has an ample amount of resources at their disposal. These can accumulate over time but some should be in place before you get started. Even if you don’t use your own capital you need to have reserves. These can be used for pulling title, ordering inspections or finding deals through wholesalers. In addition to capital you also need a base of contacts. Your real estate agent, mortgage broker and attorney can not only help you find deals but ensure they actually close. You don’t necessarily need to start with a full arsenal of resources but you shouldn’t go in empty either. At some point in almost every deal you will need to resort to plan B. When you do you don’t want to have to scramble to find the resources you need.
- Not Knowing The Market. A good deal is only that if you can do something with it. You may have the opportunity to buy a property at a severe discount but what do you plan on doing with it? If the property is located in a down market it make years before you can see any appreciation. This is why market knowledge is so critical. Things can change dramatically from one town to the next. Even within the same town two similar looking properties can hold entirely different appeal. Before you even make an offer you need to have an exit strategy firmly in place. You need to know the worst case scenario and how long you anticipate holding the property for. In many cases the specific market is just as important as the actual property.
- Not Finding Help. Investing in real estate often takes more than just one person. Even if you have knowledge of the business there are many things that require an extra set of eyes or ears. You need to have a firm grasp of what is going on with your business at all times. If you have any questions or don’t understand the process you need to ask for help. This could be in the form of advice from a contractor or asking the right questions to a clerk at town hall. The longer you are in the business the easier things will become. Until you acquire the confidence and experience you need it is ok to ask for help.
Your first six months in the business are the most difficult. As you are just starting out focus on not falling for these five common mistakes.