Investing in Real Estate for Beginners: 7 Common Mistakes to Avoid
Investing in real estate isn’t as easy as it might look, but if you avoid making these beginner mistakes, you’ll be golden.
Flipping houses or starting your own real estate investment business seems to be all the rage right now. There are TV shows, books, and motivational speakers all telling you that you can be the next great real estate mogul. Investing in real estate can be a great business to get into, but only if you’re well prepared. House flipping may seem like a quick way to make a buck, but there’s a lot more that goes into it than just buying, renovating, and selling. If you want to make the Forbes list, you’ll have to avoid making these common mistakes when you’re investing in real estate.
House flipping may seem like a quick way to make a buck, but there’s a lot more that goes into it than just buying, renovating, and selling.
1. Winging it
If you’re the type of person who jumps into commitments without having a plan, the real estate investment business is not for you. This isn’t the place to try and figure it out as you go. One of the biggest mistakes you can make is buying a house before you know what you want to do with it because you think you got a good deal. According to real estate veteran Andy Heller, that’s working backward.
“First, you find the plan,” he says. “Then, you find the house to fit the plan. Pick your investment model, and then go find a property to match that. Don’t find the strategy after you find the home.”
Before you do anything, you should determine what you’re willing to pay. Stay true to that number and don’t go above that. It’s best to have your eyes on multiple properties and make offers on them, that way you don’t care which one you get as long as the numbers work out in your favor.
2. Thinking you’ll get rich quick
With all the hype surrounding real estate investing, it’s a common thought that real estate is a quick and easy way to make a ton of cash. I regret to inform you that, sadly, this isn’t the case. When you decide to invest in real estate, you have to accept that you’re playing the long game. The “gurus” don’t talk about all the hard work and planning that goes into it on their infomercials. Real estate takes a lot more skill than luck. You have to be smart, ready to work, and you have to understand your risk tolerance. Real estate investing can be a lot of things, but a get-rich-quick scheme isn’t one of them.
Real estate investing can be a lot of things, but a get-rich-quick scheme isn’t one of them.
The biggest reason a lot of investors don’t make money is simply that they’re paying too much for their properties. A lot of times, investors will overbid on a home when they fail to do any background research, or they’ll succumb to the frustration that comes with the process of buying a home. When you’re anxious for a seller to accept your offer on their home, you tend to overbid on the property, and that can mean trouble. Investors often end up overextending themselves and taking on too much debt, creating higher payments that they typically can’t afford. Consequently, it could take years to recoup your investment. Luckily, you can avoid this pretty easily.
4. Not doing your research
Doing your research is the easiest way to avoid overpaying for a property and many of the other pitfalls that real estate investors encounter. You wouldn’t be qualified for any other job if you didn’t have the requisite skills and knowledge to perform. Why would you expect to buy and sell your way to a million without even cracking open a book? Educate yourself before you put your financial security on the line. Research different markets and current rates to make sure you’re not getting yourself into a bad situation by purchasing a certain property. Look up different techniques for buying and selling and the most valuable ways to renovate a home. The more knowledge you gain on the business, the better you’ll be at avoiding rookie mistakes and unnecessary risks.
5. Surrounding yourself with the wrong people
A major key to success in this business is having a solid team of professionals around you. Real estate investing requires a level of focus and commitment that may be too much for one person to handle on their own. The best way to avoid getting burned out is to start the process by building a team on day one. That could mean investing with partners or working with a larger group of professionals. Most investing teams feature a real estate agent, a property law attorney, professional contractors, and a property management company. Having extra support can prove to be the difference between a successful business and a business that flames out in a few months.
6. Underestimating expenses
Every homeowner can attest to the fact that there’s way more to owning a house than just making your mortgage payment every month. There are maintenance expenses, costs associated with furniture and appliances, not to mention the cost of making any type of structural changes the home may need. That being said, first-time investors tend to forget about these extra expenses when they’re house-hunting. The best advice is to make a list of all the monthly costs that would be associated with managing a home before you make an offer. Once you do the math, you’ll have a better idea of whether you can really afford a property.
Every homeowner can attest to the fact that there’s way more to owning a house than just making your mortgage payment every month.
7. Chasing bargains
Don’t waste your time looking for a huge discount on a property. If you’re making long-term investments, you don’t need to buy at a bargain. The objective here is to make deals that make sense and build as much equity as you can. Many investors limit their potential while waiting for great deals when they could be purchasing multiple properties. If you keep a long-term outlook, you’ll avoid that bargain-hunter mentality and focus on growing your portfolio.
Do you have any advice for people who are looking to start investing in real estate? Share some tips with us on social media!