In real estate, like many facets of life, it can often times be more useful to know what NOT to do than to know what to do.
Being in real estate for many years, I have seen a pattern of mistakes that most people tend to make as beginners. We have helped thousands of people invest in real estate, and of all the mistakes we've seen, the following 10 make up over 95% of them.
If you're able to avoid even some of these mistakes before you invest in your first or next property, you will be far ahead of most investors out there.
The following are the Top 10 mistakes to avoid in no particular order of importance, because they are all important:
1. Thinking you have to invest in your own backyard. Buying a house to live in is an emotional decision. You want to live near friends, family, in safe neighborhoods, close to entertainment and your job location. Investing in real estate is a financial decision and must be treated as such. If you live in a tenant-friendly state like California, I highly encourage you to look elsewhere. Similarly, if you live in areas like Los Angeles, San Francisco, New York City, or Seattle, consider branching out because it’s still cheaper to rent there than it is to buy. Live where you want, but invest where the numbers make sense. One must choose a geographic location to invest based off of logic, research, and the numbers.
2. Not setting specific investment criteria. I can’t stress the importance of this one enough. Everyone needs a plan, because “Failing to plan is planning to fail”. Real estate needs to be an unemotional event where you stick to your criteria and stay focused. In real estate, being picky is good but being a perfectionist is unrealistic. Allow your investment criteria to tell you when to say yes and when to say no. If you don’t have clearly defined criteria, it could result in major headache and costly mistakes. Real estate investing is not “one size fits all,” meaning what is a good investment for you might not be for the next person. Don’t fall in love with an investment property, fall in love with your criteria and you’ll quickly realize that there’s no such thing as a “Once in a lifetime opportunity.”
3. Investing in a particular market because you have family nearby. This is one I hear often and sadly it gives people a false sense of security. Family and money, more often than not, complicate things rather than simplify things. Does it make sense that your brother who is a math teacher goes and looks at a broken garbage disposal? Better yet, if you plan on owning this property for 10 years, how many family favors do you have stored up? Work with a professional property manager to manage your property rather than a family member that has their own life and really doesn’t know a whole lot about real estate investing anyways.
4. Doing things simply because “That’s the way I have always done them.” Life moves very quickly these days, and technology is only increasing this rapid rate of change. Thankfully, these changes are for the better. Eight years ago, you never would have been able to type in the address of a property you are buying on a computer and check rental comps, recent sales comps, look at aerial photos, and virtually stand in the street facing your property. My point is this: Working with an outdated CPA, or not upgrading your computer or software, or not continuing to educating yourself on the changes in financing and the real estate market will hinder you from setting yourself up for financial success. Never stop learning!!!
5. Working with the wrong people. You absolutely need to surround yourself with a trusted network of experienced professionals that have an extensive track record of solid performance. I understand people occasionally make mistakes, however, life is too short to have your retirement be the guinea pig for some “new kid on the block” company. Real estate investing demands well-educated and ethical individuals that are not just “in the business,” but are actually investors themselves who do more than just talk the talk.
In part 2 of the Top 10 Mistakes to Avoid in Real Estate Investing we reveal 5 more mistakes to avoid. Read on!