School of Hard Knocks: 5 Common Real Estate Investing Mistakes
By Dr. Teresa R. Martin, Esq.
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Although real estate may seem like a sure bet for anyone, many investors make the same few mistakes. Eliminate these errors from your investing activities and you'll be well on your way to accumulating the wealth you desire.
Avoid These Mistakes
Poor research. Most of us do a lot of research when we plan our vacations or purchase a new television. If you were buying one that was worth 100k, you can bet you’d do even more research! Well, you should be doing that when you purchase a piece of real estate, too.
Inadequate financing. Real estate investors frequently like to wheel and deal, and their deals can have a lot of moving parts. Balloon payments, interest-only payments, owner financing, subject-to, and many others are commonplace.
To make a deal happen, we can get carried away doing everything in our power. Getting a great price doesn’t always justify the deal if the financing is inadequate. Are you really sure that you can unload the property or get other financing before that balloon payment comes due?
Trying to do everything yourself. Though every real estate investor attempts this at one time or another, you have little chance at success all by yourself. A great investor will have, at a minimum, a real estate agent, attorney, title company, inspector, handyman, and insurance agent – all on speed dial.
You may not always need them, but they should already be in place, and you shouldn't hesitate to call them if you do want their services. Use your experts to your full advantage.
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Paying too much. This one is certainly related to doing enough research. Real estate deals primarily sink or swim based on price. If you pay too much, not much can be done to rectify the situation.
Beginning investors are more likely to mentally fudge the numbers a little bit to make a deal happen. But if the repairs run high, and the price they can sell for is lower than expected, then overpaying in the first place can be disastrous. Do your research and your math and stick to your numbers.
Not estimating expenses accurately. This is similar to paying too much. Many investors will look at repairs and think to themselves, "Everyone is saying it will take $20,000 to fix, but I'm sure I can get it done for $14,000." But what if it really takes $23,500? That's part of the reason getting the property at the right price is so important.
The other aspect of this mistake is not accounting for all expenses. The costs of landscaping, lawn mowing, insurance, utilities, property taxes, and new appliances can really add up in a hurry. Be realistic with your repair planning and take careful notes of all your possible expenses.
Real estate investing is a relatively simple business, but mistakes can create massive challenges in a hurry.
Every seasoned investor has made all of these mistakes. The best investors just make them less often than everyone else. In any housing market, there are moneymaking opportunities, so don't let these mistakes slow you down!