Five Mistakes in Real Estate Investing

In case you’ve been stuck in a basement for the past 5 years, you are aware that real estate investing is VERY popular!  Just look at the number of television shows about real estate and you can see that there is much interest on the subject.  Shows like Flip That House, Sell This House, House Hunters, Making Money in Real Estate, Riches in Real Estate, Open House…( I could go on)…. all reflect our interest in the topic!   But it’s easy to make costly mistakes in the market.  So let’s look at a few things to avoid.

Mistake #1:  Failure to get sound advise
 
With all the free information floating around, everyone thinks that all they need to do is watch a little TV, pick up a few fliers from homes for sale in the neighborhood, or look at web sites like Zilla or Realtor.com, and they will be fully educated regarding their purchase or sale.    This is SO not true.   The learning curve for real estate is much larger than something else like the stock market, and it doesn’t take but one bad decision to really ruin a perfectly good day.

Some newlywed neighbors of mine decided that since they knew how to look up home prices on the computer, and the wife was an accountant, they would price and sell their own home.  They pulled fliers as they drove by homes for sale in the neighborhood and they played around on Realtor.com.  Then they priced their own home and placed the FOR SALE BY OWNER sign in the yard.  Good news!.. the house sold in a few days.   Bad news!… they undersold their house by at least $15,000.   Now, there’s two ways to look at this savings.  Sure, they saved about $7,000 in realtor fees… but their decision still cost them $8,000….which would have made for a nice honeymoon in Tahiti.   

Mistake #2:  Investing like you’re in the stock market

If you are planning to make a long term investment in real estate, your chances are excellent that you will end up with a positive.  Even if you plan on flipping a house within a year, you might still come out ahead.    But lots of folks are buying properties at full market value, and they end up having a negative or break even cash flow.  When the market starts to tank, these folks are in big trouble if they don’t have lots of cash reserves.  And if you’re borrowing against your personal home (like a Home Equity Loan) for these properties… think of what you’ll do when the market starts to slide.  And that’s some really risky business.

Mistake #3:  Over-extending your financial resources

It’s easy to buy a home with no money down; it’s hard to keep your head afloat if you’re suddenly hit with expenses and repairs and you don’t have sufficient reserves.    Without a solid bank account to back you up when things take a down turn, you might be forced to make substandard repairs, accept less than qualified tenants, or give into demands out of fear of a vacancy.    So make sure you have sufficient funds on hand so you can control any unexpected situations.

Mistake #4:  Don’t be Greedy

Do I really need to explain this one?  If you want to believe all those infomercials on TV at 3:00 in the morning, then I have a bridge to sell you in Arizona.  Unrealistic expectations and the promise of a quick dollar get more folks in trouble than you can imagine.

Mistake #5:  Don’t forget that real estate is a business

Treat real estate like the career that it is.  It’s not something that you can do successfully on a whim.  Give yourself some time to learn about the business.  Take time to study the business and understand markets.   You might buy a home in the first year… and you might not.   It takes time to learn the ins and outs, and don’t expect this to make you an overnight millionaire.