I can say that my decision to buy real estate has been one of the best things done for my financial well-being in the last 25 years.
Knowing what the most commonly made mistakes by new investors are will help ensure you don’t make them. So let me run them down for you.
1) Not having a plan. Lack of a good plan is the biggest mistake made by new investors. Many make the mistake of buying property because they think it’s a great deal and then they try to fit it into their plan or create a plan around the property - putting the cart before the horse so to speak. I teach a five step process that helps avoid this mistake.
2) 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 even more complex, and 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.
3) Believing the infomercials that say it’s easy to become a Multi-Millionaire overnight with real estate. One reason it’s called real estate investing is that it takes time.
4) 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. Don’t get paralyzed by analyzing, but you must have the right tools and team members to make an informed decision.
5) Shopping without financing. Being pre-qualified 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.
6) 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, it fits your plan, it has more upside potential than issues and it will help you meet your goals. Don’t let emotion drive your decision. That’s what “HOME” buyers do, not professional real estate investors. Buy the numbers.
7) 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 you can pay is and still have it be a good investment. Don’t go over that amount; walk away knowing there is another deal out there waiting for you.
8) Miscalculating the numbers. When I teach the professional real estate investor class, we spend a lot of time on calculating profit and/or cash flow. I’ve created spreadsheets for our students that use simple formulas which allow the student to get to making a decision. Then by using a professional team and using the cost projections they provide, you’ll get cost and cash flow very close to what is realistic. The one thing we want to stay away from is turning an asset into a liability.
9) 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, and sometimes that is just wrong.
10) Not having a Plan “B”. Having more than one option for the property is the wisest strategy. This is being prepared for unforeseen fluctuations in the real estate market. Having an alternative plan helps cut down on losses and allows you to handle unexpected situations. In the Professional Real Estate Investor Class, we focus on creating your Plan A and Plan B.
11) Not reading the fine print. Understanding what’s really in any document before picking up a pen and signing on the dotted line. 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 work with but the buck stops with you, so be informed.
12) Under-estimating the cost of rehab. As a simple rule of thumb, double the time and cost of rehab. If you find there is still a reasonable profit, then you’re closer to ensuring that you have found a good and profitable transaction.
Looking forward to meeting many of you online or in the classroom.
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.