As a result, I decided to create the following list to help novices understand what these common mistakes are and how to avoid them. The good news is that all of these mistakes can be easily corrected. As a real estate investor and advisor, I often see novice investors make the same exact mistakes. In my experience, these are the 9 most common mistakes I see novice real estate investors make:. The bad news is that any one of these mistakes will seriously limit your potential for success.
Getting an education is a critical part of becoming a successful real estate investor. Is a $500 course worth it if what you learn only makes you $5,000 on a single wholesale deal? What if it could save you a mere $5,000 on a single rehab? Or what if it helped you create an extra $200 per month cash flow on a single property for just one year? Would it be worth it to you? The value of an education often doesn’t reveal itself until you’ve stepped up to the plate and put yourself in the game. I guess that depends on where you stand. We are lucky to live in a country full of educational opportunities for whichever endeavor we want to pursue. It’s much easier and less costly to educate yourself than to make mistakes in the real world. Perhaps to a novice though, they may seem expensive. To me, they seem cheap compared to what I know can be earned in this business. But as the saying goes, “If you think education is expensive, try ignorance.” Think about it. Surprisingly though, not everyone takes the initiative to learn before they take action. This exposes these people to costly (and sometimes career-ending) mistakes that could have easily been avoided. Some misguided people even complain that the books, courses, or seminars promoted by real estate experts are too expensive.
Do you really want to get your information from “rei-man-TX” or “investor-guy75?” Carefully consider whether these are truly reputable sources to be obtaining information from. But it’s also saturated with too much information – good and bad. Oftentimes, from less than credible sources. The internet is a great tool. So don’t confuse the information you find on the internet as neccessarily being quality information. For example, there are a number of real estate investing newsgroups and blogs that have proliferated the internet. The misinformation you get may be costly…in either lost profits or reputation. Many so called experts on these sites are more than willing to share enough information to get you into trouble. But just because someone has a blog, doesn’t mean they necessarily know what they’re talking about. I can’t believe some of the misinformation I’ve seen posted on these sites. Remember, anyone can post on a newsgroup and anyone can create a blog.
Novice investors may also get misinformation from friends or family members. Perhaps they dabbled in real estate at one point. As the saying goes, “Jack of all trades, master of nothing.”. Now they feel entitled to tell you what little they may know about real estate investing. Be extremely wary of people who have “dabbled” in anything. Dabblers are rarely experts in anything.
Personally, I believe that initial failure is the universe’s way of forcing us to make sure we truly want what we’re pursuing. Some novices neglect to take action because they’re still searching for that magical secret that is going to make it start raining deals. And the more we persist, the closer we get to success. Or, they may give up making offers if they don’t experience instant success. Knowledge is only power once you begin to apply it properly. The real secret is hard work! Others are paralyzed by fear of what might happen if they get one of their offers accepted. In the end, persistence is what leads to success. Merely buying a wide array of real estate investing products or attending bootcamps isn’t going to make you any money. Whatever the reason, not taking consistent action is a sure way to fail at anything. If you’ve managed to get a good education from a good source, the next step is to take some action.
My advice is simple, go out there and get some deals done. When I meet these people, my advice to them is to stop sitting around with the other novices talking about all the deals they would like to be doing. Instead of using the club as a spring board into taking action, they tend to use the club as a warm blanket because they fear being out on their own. Many novices regularly attend their local real estate clubs. But that is only one step in the process. Clubs and associations are excellent way to network with other like-mided people, learn techniques and strategies, and have fun. Unfortunately, I’ve met countless club goers who have never done a deal before. We all need a good education. There is no substitute for hard work.
They’re expectations are either too high or too low. If they’re rehabbing properties, they may underestimate the repairs required. Most novice real estate investors have unrealistic expectations. It may be about the amount of repairs a property needs, the time it takes to complete a project, or the profit they should get from a deal. They assumed everything would go as planned. While getting an education plays a large role in these mistakes, another reason is that they did not leave enough room for error. If they’re wholesaling properties, they may get too greedy and try to charge the rehabber too much. If they’re landlording, they may underestimate the amount of maintenance a property will require or forget to factor in vacancies. Experienced investors understand the importance of planning for the unexpected. This way, when things don’t go as planned it’s not the end of the world. Real estate deals rarely go exactly as planned.
Whether a novice investor’s intentions are to flip or to own rentals, they sometimes think owning real estate is going to be a lot easier than it is. Or it might mean that instead of going to the park on Saturday you search the MLS, look at properties, and familiarize yourself with your target neighborhoods. You need to set policies and procedures and adhere to them. You need to set a schedule for yourself and stick to it. You need to set goals and do whatever you can to achieve them. Whether you’re wholesaling, rehabbing, or landlording, real estate requires your time and constant attention. Contrary to popular belief, real estate investing is not like the stock market. For you this might mean that you need to turn off the television and read your home-study courses. In this way, it’s more like a business than an investment. For example, you must be disciplined about your business. It is not a passive investment. It might mean that instead of spending money on new clothes, you invest that money in your business. You must be willing to make sacrifices to succeed. Not everyone has that level of discipline without a boss telling them what to do. While the profit potential in real estate is usually much greater than owning a stock, it inherently requires more effort than most passive types of investments. When you run your own business, you are the boss. It is an active investment.
Furthermore, it can take years for your real estate investing business to become a thriving venture. Running your own business can be fun and extremely rewarding. It can take awhile for novice investors to see positive results when starting out. As a result, you need to have a lot of patience for things to take off. But rest assured, the early years can be unpredictable. It may take several months to get your first deal. It often takes several years for most businesses to get to a point where they make steady and reliable profits. As a comparison, new real estate agents are often told by their brokers that it may take up to six months to close their first transaction. There aren’t too many businesses that become profitable immediately – no matter the type of business. You can’t expect to immediately find deals and make money. Similarly, real estate investors should expect to wait a few months to close their first transaction.
This is one of the biggest mistakes I see novice investors make, especially after they have done a few deals. When an investor learns to concentrate on a small number of quality deals, they enjoy not only better profits, but also a better lifestyle since they’re not running around managing a huge portfolio of properties. Their natural inclination is to do more. They might feel bored unless they’re working on something new. Unfortunately, this is a lesson that most investors learn the hard way. They might feel the pressure to tell their friends what new project they’re working on. For some reason, avoiding the temptation to focus on quantity is a principle that most investors have a hard time accepting. This mindset leads them to do less profitable deals. Most of these investors went bankrupt and lost all of their properties. For most people, the whole point of getting into real estate investing in the first place is to live a better quality of life, not to work longer and harder. Or they might feel guilty about not “staying busy.” Whatever the reason, novices must learn that investing is an activity in which “staying busy” is not always smart. When the market went south, these investors were left holding a lot of worthless inventory. For example, I know many wholesalers and rehabbers who became too confident before the housing downturn of 2006 and loaded up on properties. And once an investor begins to do thinner deals for the sake of doing more deals and outdoing their competition, they eventually find themselves in trouble. Sometimes, the best deals are the ones you don’t do. After they have some success, they begin to focus too much on quantity instead of doing quality deals.
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