This past week I was asked what the most common mistakes were among rookie real estate investors. Being a newbie myself, I thought this may be good for us all to learn, so that we can be on the lookout and avoid some of these mistakes before they bankrupt our wallets. Here are just a few to avoid…
|– Limiting yourself to a specific market
– Over / under renovating
– Bad financing
– Doing everything yourself
– Wrong location
– Bad numbers
– Not understanding your contract
– Not creating an access channel to deals
– Not establishing goals
– Buying too big
– Buying too small
–Overpaying for a property
– Entering a bad partnership
–Not doing enough research
|–Not being a patient
–Being too hesitant
–Failing to keep records
– Not having an exit strategy
– Focusing too much on finding the “perfect deal”
–Letting emotions drive your decision
So today, let’s be productive and talk HOW DO WE AVOID THESE MISTAKES AS NEWBIES?
DO YOUR DUE DILIGENCE ALWAYS
Okay so this is super vague, and can very literally mean so many different things, BUT first things first make sure you know (a) why YOU are investing, so that you can then become (b) super knowledgeable about how to go about doing it, which will lead you to (c) finding the best deal for you.
- What are you looking for? Are you looking to create passive income? Is this something you want to make your full-time job? How much cash flow are you hoping to generate monthly / annually?
- How do you want to go about investing? What strategy interests you most? And more importantly, what strategy makes sense for where you are looking to invest?
- Point is: DO YOUR RESEARCH & find out what makes sense FOR YOU.
KNOW YOUR MARKET
- So let’s say we have decided where we want to invest – woo!- now we must stay hip, relevant & knowledgeable about the place. It is important to be able to…
- Identify a “bad” market – if things go south, how do you plan to get out?
- BTW (by the way), DAYS ON MARKET (DOM) I learned this can be a quick, easy & important metric to use to help us identify how our local market is doing …high # of days on market = buyer friendly market, low # of days on market= seller friendly market (not a hard fast rule just a little something to help us in our search)
- Identify a “good” market – if the market next door, down the street, or even on the other side of the country looks “hot” – are we paying attention?
- The market is constantly changing – it is important to keep up with news & current events to stay on top of what is going on in your local market & across the U.S.
- The more you know your market = the better deals you will be able to put together = the more $$$ you will put in the bank.
KNOW YOUR NUMBERS
- There are SO MANY NUMBERS to keep track of before, during & after a deal. We should try & avoid the below…
- Overstating your income
- Understating expenses (especially paired with the above)
- Not establishing a budget prior to closing
- Misjudging sale or rental value (this risk can be mitigated if you “Know Your Market”)
- Running out of cash (plan, plan, plan – know your budget)
BUILD THE RIGHT “TEAM”
- Choose the RIGHT TEAM – our teams can very literally make or break us. From choosing the right partner, contractor, property manager, lawyer, accountant, agent, financier, etc. – make sure they are right for you & your goals.
DO NOT RUSH
- BE PATIENT – this a tad hypocritical for me to “preach” as this is something I must remind myself of every day, BUT do not rush the process. Successful businesses / corporations / empires / enterprises / partnerships, whatever it is you want to call them, are not built over night. So, take a deep breathe, do your research, put in the hard work & trust the process.
I am sure I will have to learn (the hard way) how to avoid many more mistakes in the future as I work to “grow my business”- but hopefully this list helps me dodge a few of these downfalls. Do you have any mistakes not listed above that you think we should all be on the lookout for? Or, perhaps you are now a successful, seasoned investor and have some advice for the rest of us rookies?
Again, thank you so much for being a part of this and please know that I am open to any and all feedback on how this is structured, content, writing style, etc. As we go forward, I hope to make this more analytical, factual, and even just helpful as we all work to build our real estate portfolios.
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To come up with today’s list I polled from several different articles to see which mistakes were listed the most.
Data Sources for today’s content: