Every beginning is hard, they say. Starting out in real estate investing is not an exception to this rule. Every person is entitled to making mistakes sometimes, even real estate investors. The number of possible mistakes in the field of real estate is endless. However, there are some common slip-ups of new real estate investors. The best way to learn real estate investing is to change the learning direction. Instead of understanding what to do, learn how to invest in real estate by reading what you should not do.
Related: 14 Common Mistakes of a First Time Real Estate Investor and How to Prevent Them
Real Estate Investing for Beginners Mistake #1- Lack of Research
The problem: The real estate investor has not done enough research. Sometimes, starting in real estate might seem easy and promise great profit quickly. Nevertheless, there are a lot of things to take into consideration before proceeding with your real estate investing career.
The solution: As a new real estate investor, it is advisable that you understand the basis of this profession. Read information on the topic of real estate investing in general. It might be useful to take an online real estate course or watch some videos on the topic. Most importantly, read every bit of information you can find on the real estate investment property you want to buy. Do not forget to check the neighborhood as well. The investment property and the location are of extreme importance when it comes to the success of your real estate investing business. There are so many accessible real estate sources online, such as various blogs on the topic of real estate for beginners, including Mashvisor. Make use of them!
Real Estate Investing for Beginners Mistake #2- Too Much Reading, No Practice
The problem: Doing too much research can also be a mistake for a new real estate investor. This is due to the fact that investors who are just starting in real estate might get caught on reading. Why is this a problem though? Doing too much real estate research often leads to lacking the practice. You cannot become a successful real estate investor unless you jump in and start practicing the profession.
The solution: Accept the fact that you cannot know everything on the topic of real estate investing. Make enough research to feel confident as a new real estate investor and get to business. Be sure to balance properly reading and working.
Real Estate Investing for Beginners Mistake #3- Not Doing Your Budget Properly
The problem: It is possible that as a new real estate investor, you find it difficult to manage your finances. This is something real estate investors usually learn from experience. Yet, not calculating you finances properly might cause great damage to your real estate investing business.
The solution: Make a financial plan: establish your real estate investments, your goals, and your assets. Another useful tip is to use an investment property calculator. This real estate investing tool calculates everything you need: cash on cash return, cap rate, cash flow, etc. Mashvisor’s investment property calculator, for instance, is quick and affordable. Additionally, it offers some great unique benefits to help you and your real estate business develop.
Related: Mashvisor’s Investment Property Calculator: Real Estate Investing Made Easier
Real Estate Investing for Beginners Mistake #4- Underestimating Expenses
The problem: In order to make money out of you real estate investing business, it is important to generate positive cash flow. This simply means to have more money inflow in a specific period of time than the money that outflows during this time. Therefore, it is essential to properly calculate all the possible expenses you as a real estate investor might have. New real estate investors tend to forget some of the possible costs they might need to pay.
The solution: Make research and read about all the possible expenses you are likely to face in real estate investing. Make a list and see which of them apply to your real estate investing business and which do not. When making a real estate investing decision, do not forget to take in mind all the costs you will have.
Real Estate Investing for Beginners Mistake #5- Overpaying
The problem: Despite the fact that new real estate investors are often the ones who lack financial assets, they are also the ones who tend to overpay. When you have just started in real estate investing, you may overbid in order to ensure that you get the real estate investment property you want. This overpayment, however, might affect your real estate investing business negatively.
The solution: The solution of this problem is tightly connected to the one for mistake #1. Make research and see how much other real estate investors are willing to pay for this real estate investment property. Do not overbid, rather make sure you are offering a reasonable price.
Real Estate Investing for Beginners Mistake #6- Wrong Investment Strategy
The problem: Starting out in real estate investing is not a simple task. One of the biggest obstacles is choosing the right investment strategy for your real estate investment property. As a new real estate investor, you might neglect that point assuming that the same rules are valid for each and every investment property. However, this is not the case. There are multiple real estate investment strategies to choose from. Different investment property types require different real estate investment strategies.
The solution: Identify the type of your investment property and apply the proper real estate investment strategy. Let’s say you have invested in a multi family investment property. There are two main real estate investment strategies you can choose from: namely, renting out your property on the traditional market or becoming an Airbnb host. Carefully consider the pros and cons of both investment strategies and choose the one that suits you and your real estate investment business best.
Real Estate Investing for Beginners Mistake #7- Not Setting Up Your Rent Properly
The problem: Setting up your rent is a huge part of having a successful rental property, which generates positive cash flow. If you set up your rent too high, for instance, you might find your rental property vacant for long periods of time. If you set the rent too low, though, you will have more expenses than income.
The solution: There are some things you need to do before deciding how much to charge for rent. For instance, identify the investment property type and the real estate investment strategy; calculate the costs associated with your real estate investment; evaluate your property and what features it has. Additionally, check the market value of your investment property; the rent usually varies between 0.8% and 1.1% of this value.
Real Estate Investing for Beginners Mistake #8- Not Knowing When to Sell Your Investment Property
The problem: Sometimes the best decision for your real estate investing business is selling your investment property. How to know when the time has come for selling your investment property? For instance, it is performing bad, it requires too much maintenance, etc.
The solution: Understand that holding on to your real estate investment property is not always the best decision. Constantly evaluate your property and if you notice that your real estate investment is causing more damage to your business than bringing benefits, it is time to sell.
Real Estate Investing for Beginners Mistake #9- Not Researching Potential Tenants or Future Buyers
The problem: This mistake speaks for itself. Not researching the background of the potential tenants of your investment property might cause a serious damage to the real estate investing business you run. For instance, tenants might destroy your property and instead of making money, you will end up in costs. Another negative outcome related to potential tenants and future buyers is not being paid the agreed sum. Not getting to know your future tenants/buyers is a common mistake almost every new real estate investor makes.
The solution: Simple! Research the tenants and buyers of your real estate investments prior to renting out or selling.
Related: The 17 Worst Real Estate Investing Mistakes and How to Avoid Them
Read more of Mashvisor’s tips on real estate investing for beginners in order to become a prosperous investor in the field.