13 Real Estate Investing Mistakes and How to Avoid Them

13 Real Estate Investing Mistakes

Investing in real estate is one of the most popular ways to build wealth. But there are plenty of mistakes that can hold you back if you're not careful. Here are 13 common mistakes and how to avoid them.

Investing Mistakes # 1. Thousands of dollars spent on books, recordings, and seminars, then storing all of that material on a bookshelf and never looking at (or using) it. 

Comment: I am constantly astounded by the amount of "would-be" investors who have spent a lot of money attending seminars and gaining an education, only to never use it to start their investing program. It is not just a waste of thousands of dollars, but it may also be the most costly financial blunder you can do.

Investing Mistakes # 2. The failure to understand the fundamentals of real estate investing. 

At the opposite end of the spectrum from Number 1 above are potential investors who see that real estate is the best method to build wealth and decide to invest in properties without first learning the fundamentals of real estate investment. Those investors will undoubtedly face financial difficulties.

Investing Mistakes # 3. Fear of making a costly financial error.

They're all afraid of making a mistake, especially one that would cost them a lot of money. You won't have to worry about making a financial mistake if you follow the advice in Number 2 above.

Investing Mistakes # 4. Comment about not looking at properties.

Don't fall in love with the first house you see. Many investors purchase homes because they "appear lovely" or because they are too lazy to look at what else is available. Giving oneself a choice is an important part of smart real estate investment since it allows you to choose the best option financially.

Investing Mistakes # 5. Syndrome of "a better offer might be around the corner" 

This is the polar opposite of error #4. This investor never begins his or her real estate investment program because he or she believes that if they wait...and wait...and wait...a better offer will come along.

Investing Mistakes # 6. You may believe that real estate investing is a difficult game that only the rich can play.

First and foremost, real estate is not difficult if you first understand how to do it. Did you know that even expert investors utilize a simple nine-step method to assess an investment property's financial viability?

The nine basic procedures they utilize to analyze any type or size of investment property are outlined here. 

Financial Property Analysis at a Basic Level :

• Gross Income Expected (Income if 100 percent leased). 

• Less: Vacancies allowance.

• Operating Income (Excluding Mtg. Pets).

• Lower Operating Costs (Taxes, insurance, utilities, repairs, and maintenance, etc.).

• It's the same as Operating Income (Income before Mtg. Pmts.) Mortgage Payments (minus 6).

• It's the same as money flow. Plus, there's the mortgage principal payment.

• There's a lot more to Total Return than that, but you've read the fundamental nine-step approach that most experienced investors use when evaluating an income-producing investment property.

Investing Mistakes # 7. Having a crush on a property.

After two or three times getting your feet wet as a real estate investor, you'll wonder why you waited so long. You'll now have to deal with a new issue. Many investors fall in love with their investment property. They've seen how well it's doing, and their cash flow has been steadily increasing each year. They've also fallen in love with their renters (not literally). There are two major blunders here. First, never delude yourself into thinking your home is in good condition to sell or trade-up because your cash flow is significantly larger than when you bought it.

The second half of error number 7 is becoming too friendly with your renters to maintain rental standards based on market conditions. Your ability to grow is severely limited as a result of this.

Investing Mistakes # 8. Failure to plan your financial objectives.

Before you buy your first home, which you have, of course, financially examined, figure out what you want to get out of your investments...your financial objectives. It is referred to as "the 'time vs. money" idea. The more of the one you have, the less you need of the other to meet your financial objectives.

Investing Mistakes # 9. Attempting to buy houses where the seller is unmotivated to sell.

I've witnessed prospective purchasers repeatedly try to acquire investment houses that aren't on the market. This includes property owners who say, "Sure, it's for sale... for a price." Unfortunately, the 'for a price' component typically signifies that a buyer will not be able to afford it.

Investing Mistakes # 10. Believing you can get rich overnight.

Believing that you can get rich quickly and easily with no money of your own. It is not possible to get wealthy overnight.. (regardless of what a number of the so-called "experts" tell you). To accomplish it with the least amount of financial risk, it needs some time, effort, and understanding of real estate investment. The key point to remember is that YOU CAN DO IT. You may join the millions of other investors who make good money by investing in real estate.

Investing Mistakes # 11. Investing with no money down is typically not a good idea. 

Some money will be needed somewhere, somewhere, to put a transaction together and make it lucrative. It might be closing charges, repairs or upgrades, or something else entirely. However, money will be required someplace. There are methods to get around this difficulty without putting yourself in danger. You might be able to finance every dollar you require, but it could come back to haunt you in the shape of mortgage payments you can't afford. Again, first, learn what you're doing.

Investing Mistakes # 12. Not doing a financial analysis of a possible investment property. 

This is the most dangerous error an investment, or prospective investor can make. I've witnessed a few industry experts depend on a "worthless and incorrect" rule of thumb to make a large financial choice to acquire, with no concern for how well the property would perform.

Oh, and there's one other huge blunder that many investors make.

Investing Mistakes # 13. Believing that it is critical to pay off your mortgage as quickly as possible since mortgages are a "necessary evil."

First and foremost, as a real estate investor, mortgages are good to have rather than a necessary evil. You must discover why this is so. You must understand how, under the correct circumstances, a second or third mortgage may be beneficial. Second, mortgages are a vital component in generating wealth in real estate. You must understand how to use finance as one of the keys to building your own financial estate without being concerned about it being "risky."