Investing in real estate can prove to be the best decision you ever make – if you can make the right decisions along the way. Below are five of the biggest (and most surprising) mistakes made by both rookies and seasoned real estate investors. Avoiding these mistakes can have a positive effect on your profits, so be sure to take them to heart.
#1 – Underestimating the Actual Costs of Repairs
Many people see others’ success with real estate investing, and for some of them, this acts much like a pair of rose-colored glasses. Even the best and most successful investors sometimes fail to prepare themselves for repair costs, and it can cause some serious setbacks. Some of the best ways to avoid being blindsided like this include making sure you budget for extra repairs – including any potential repairs you may need to make in the next year or so – and that you never buy a building without inspecting every single unit.
#2 – Becoming Emotionally Attached to Their Investments
Real estate investors must always work hard to remain objective when it comes to their properties. Real estate is different from other forms of investing because unlike the stocks you hold, you can walk into your investment. You can touch it and you can even develop a fond liking for it. As wonderful as it is to really love the thing that is making you money, you must remain objective and never allow your emotions to make your decisions. Your properties are your income. If you get too emotional, you may hold on longer than you should or fail to sell when the market is right.
#3 – Going it Alone
If you ask 50 seasoned real estate investors to describe the one thing that they wish they would have done differently in the beginning, more than half will have the same answer – they wouldn’t try to go it alone. You need a network to be a successful real estate investor, and the more sizeable and qualified the network, the better off you will be. You’ll need a solid lender in your corner to help you secure funding. You’ll need contractors you can trust. You’ll need real estate agents to help you with things like market value research and finding buyers. Without these people, not only are your tasks harder, but they’re much less profitable and the risk is much greater.
#4 – Taking Someone Else’s Word about Tenants
Startlingly, it seems that many people are more worried about buying a lemon of a car than a lemon of a multifamily property. All too often, investors take the seller’s word when it comes to tenants, and this can be incredibly devastating to profits. Ask to see repairs that have been made in the last year or two on each of the units, and always ask to see copies of existing leases. For all you know, every tenant in a 24-unit complex could be due to leave a month after you take ownership. You would never buy a car without having it inspected, so don’t buy real estate without looking under the hood, either.
#5 – Not Keeping the Flow
Think of properties like the sales funnel. Not every prospective deal will work out, and only a fraction of the properties you actually consider will become projects. If you truly want to succeed in real estate investing, the best way to do it is to think of it like a business. Keep your funnel and understand that only a rare few will actually make it all the way through. This way, when deals fall through the cracks because you can’t justify the price or the extent of the renovations to be done, you still have others coming down the pipeline and you aren’t left starting your search all over again. In other words, the constant stream of prospective properties comes with a stream of income, too.
