When you take the leap into the world of real estate investing it can be easy to make mistakes that can cost you time, money, and even your entire investment. To help you avoid these pitfalls, we’ve compiled a list of six common mistakes that beginner real estate investors should avoid.
Mistake #1: Thinking investing is all about a quick profit.
One of the first things Steve DeLeon, a real estate investor with 35 years of experience teaches in his Investing 101 class is that real estate is not a get rich quick scheme. It’s important to remember that real estate investing is a long-term strategy, and it’s rare to make a quick profit. Instead, when you purchase an investment property, think of it as an investment in yourself and your family’s future.
Mistake #2: Not understanding that time is of the essence.
Many investors go look at a property to kick the tires. They want to think about if the property is right for them, run some numbers, and eventually make an offer. As a real estate investor, it’s important to get comfortable being able to make quick decisions. More deals are lost from indecisiveness than from making a bad decision. As a new investor, change your mindset. Start out with the intention to go look at the property and buy it.
Mistake #3: Failing to do your due diligence.
While the prior mistake talks about quick decisions, you don’t want to just jump in if you haven’t done your research. This includes looking at the property’s history, location, and potential for appreciation. Many new investors get excited about the prospect of owning a property and rush into a deal without fully understanding the potential risks and rewards. In addition, make sure you have a solid understanding of the financials, including the costs of repairs, taxes, and any other expenses.
Mistake #4: Spending too much money.
A common error made by new investors is overspending. They often allocate excessive funds towards renovations without thoroughly evaluating the potential returns. Ultimately, the profitability of the investment hinges on the amount of money invested.
Mistake #5: Taking on too big of a project.
Taking on too big of a project can be a mistake for several reasons. Lack of experience. Limited resources. Time Management. It’s important not to get bogged down in excessive details when renovating, such as spending countless hours selecting the perfect flooring or lighting. Instead, it’s crucial to have a well-structured plan in place to streamline the renovation process and save money.
Mistake #6: Not understanding the underwriting process.
Underwriting is the process of evaluating a property’s financial performance to determine its potential profitability. It involves assessing the risk, analyzing the cash flow, and evaluating the overall financial health of the property. Investors who don’t understand this process can make the mistake of overestimating a property’s potential income or underestimating its expenses. It’s important to understand the underwriting process to make informed decisions and avoid costly mistakes resulting in negative cash flow.
If you’re ready to take the leap, don’t let fear or uncertainty hold you back. Real estate investing can be an excellent way to build generational wealth, obtain financial freedom, and generate passive income. Just make sure to find a good mentor or real estate agent to help you, listen to the advice of other seasoned investors.