Whether you are a brand new real estate investor or a well seasoned one, you are never protected from the risk of making mistakes. After all, investors are humans, and humans are not flawless.
However, knowing the mistakes others have made can help you a lot in avoiding falling for the same blunders.
Therefore, let’s take a look at some of the most commonplace real estate investing mistakes.
Real estate investing mistakes #1 – Not choosing your location right
People often say that location is key in real estate investing, and that’s not a myth; it’s the reality. Location including the city and the neighborhood will decide what kind of rental property you can and should get, how much demand there will be for your property, how much it will cost, and how much can charge your tenants for it in addition to such things as local property tax levels, Airbnb legal issues, and many others. So, do your research properly to choose the best location for your income property.
Real estate investing mistakes #2 – Not choosing your property right
Even if you choose the best location on earth or at least in the US, you can still select the wrong property type. For example, don’t go for a luxurious single-family home in a relatively poor city or neighborhood. That’s just a silly mistake.
Real estate investing mistakes #3 – Choosing the wrong real estate investment strategy
Equally important is to choose your real estate investment strategy right. For instance, if you have limited time, it’s not advisable to go for a fix-and-flip. Similarly, buy-and-hold is generally the best strategy for a beginner.
Real estate investing mistakes #4 – Not choosing your financing strategy right
Once you know what property you want to buy and where as well as what you want to do with it, you have to make sure you can afford it. There are many financing options in real estate, cash and mortgage being the most popular ones. Make sure you calculate your available capital right and that you choose the best financing strategy for your particular situation. Mashvisor’s investment property calculator can help with this as it computes the CoC return and cap rate along with other important figures based on the financing method you select.
Real estate investing mistakes #5 – Miscalculating your budget
Directly related to the previous point is the need to calculate very carefully your budget, including both initial, one-time costs as well as recurrent costs and the expected rental income. Make sure not to underestimate your costs and/or overestimate your income because you will run the risk of generating a negative cash flow, which is not an option in real estate investing, even in the short run.
Real estate investing mistakes #6 – Starting too late
It is a common myth in real estate investing that you should go for it only once you have enough money to pay for your rental property in full, and that’s what delays many people from becoming investors in their 20s. It is best to start early for two reasons:
1) Real estate is learning by doing, so it’s better to give yourself plenty of time to learn all the details of the business.
2) Getting rich in real estate investing takes time.
Real estate investing mistakes #7 – Thinking you will get rich fast
That brings us to the 7th among the most popular real estate investing mistakes – relying on getting rich quickly. Chances are it will not happen. While you can make lots and lots of money as a real estate investor, it usually takes some time, at least a few years, sometimes a few decades. Don’t expect to be rich by the end of the year if you buy an investment property now. Being greedy will push you into making many other mistakes.
Real estate investing mistakes #8 – Starting too big
As said above, investing in real estate is learning by doing, so don’t overwhelm yourself with such a huge first investment that you cannot handle it properly and you go bankrupt right away. Instead, start small and then use opportunities to grow your businesses. You will have plenty of them.
Real estate investing mistakes #9 – Not choosing your rental strategy right
Once you are ready to buy a rental property, you should make sure to choose the most appropriate rental strategy. While some locations and property types are better for traditional renting, others will bring you more return as Airbnb. Also make sure to check the local Airbnb legislation before going for this strategy.
Real estate investing mistakes #10 – Not setting your rent right
After you have decided on your rental strategy as well, it is time to calculate how much you should rent your property for. You should not ask for too much because then will not be able to find tenants; and you should not ask for too little because then you will not be getting as much cash flow as possible. Your estimate should be based on solid research and calculations, rather than on your guts – unless you are a real expert.
Real estate investing mistakes #11 – Not utilizing resources and tools well
In your market research, property search, and property management you should take advantage of all available real estate investing resources and tools. Whether online or offline, there is an abundance of them. Most importantly, get a good rental property calculator.
Real estate investing mistakes #12 – Getting a professional property manager when you cannot afford it
Once again, you should be careful about your expenses as a real estate investor. If you are still new and not making much money, it is not wise to hire a professional property manager because he/she will cost you dearly.
Real estate investing mistakes #13 – Not getting a professional property manager when you can afford it
At the same time, if you are already a large-scale investor who has more important – and profitable – things to do than to go around his/her properties, paint walls, and fix water pipes, by all means, you should get a professional property manager, who will save you tons of time and energy which you can devote to better uses.
Real estate investing mistakes #14 – Going on your own
While you can be an independent real estate investor, you don’t have to be one. Real estate investing is very much about networking, which in turn will give you opportunities for real estate partnerships. Don’t overlook such options just because you think you work better on your own. Partnerships will give you an opportunity to diversify your investment portfolio and to go for larger investments.
Real estate investing mistakes #15 – Taking too much time to grow
Related to the previous point, you should use any opportunity to grow in real estate investing and not be afraid of the risks associated with this. After all, you will never ever become a millionaire with a single income property.
Real estate investing mistakes #16 – Being driven by emotions
Remember that real estate investing is just a business and should be treated as such. You are not buying, fixing, or maintaining your own home. You are working on an investment asset. So, don’t allow yourself to be driven by emotions in any real estate investment decision that you ever make. Instead, be a professional who makes decisions based on research, knowledge, and evidence.
Real estate investing mistakes #17 – Not learning from your mistakes
Last but not least, the worst of all real estate investing mistakes that you can make is not to learn from your previous mistakes. As an investor, you are predestined to make at least some mistakes, no matter how small they are. That’s OK. Just make sure that you draw the right conclusions and learn the right lessons from them in order to avoid repeating them in the future.