Real Estate Investing for Beginners: 6 Mistakes to Avoid

People who are new to real estate investing, and even those with experience, often let their excitement and ambition for a project get in the way of their ability to make a smart business decision. And although the real estate industry moves quickly and requires a certain degree of risk-taking from the investment side, there can be real trouble when one approaches real estate investment without a real understanding of the risks involved, and how to avoid making potentially detrimental mistakes. Below, we cover 6 mistakes commonly made in the real estate investment world that experts say you should try your best to avoid making if you want to succeed. 

1. Getting Locked In 

Something that people with lots of experience in the real estate industry will often say to others beginning their real estate investment journey is to never get locked in. If a place– be it a piece of land, hotel or house– isn’t meant to be, you have to be able to let it go and move on. Often times people let their excitement and their vision of the future overwhelm their ability to see clearly whether or not a property is really worth investing in. One must seriously think it through, and if the odds of success aren’t looking so promising, one must move on. When you find the right opportunity, you will know it. 

1. Overpaying 

This one may seem obvious, but it is still worth touching on. Overpaying for property is very common. Most of the time, sellers are willing to let go of the property for more than the listing price. Working with a real estate professional, like an agent, to assess whether or not a property of interest is consistent price-wise with the current real estate market will be very useful as you consider your investment options. If a place is listed way above market value, you might be able to talk the seller down. If it's below market value, then you might be more inclined to jump on it. Either way, knowing when and if you are overpaying is critical when it comes to real estate investments.

One commonly used tool when assessing property price and estimating your potential return of investment on property to be rented out is called the rule of 1%. The rule of 1% is that the monthly rent for a property should be equal to or greater than one percent of the price of the property. So, if you are interested in purchasing a property for $150,000, but can’t imagine that you will be able to rent it out for at least $1,500 a month, then it probably will not have a high enough return on investment to have been worth it. 

1. Overlooking Your Audience 

Considering your audience is important for all kinds of real estate investments. If you are purchasing an apartment building to rent out to tenants, you will want to have some kind of idea of not only what type of tenant you want to attract, but how to attract that person to your apartment. For example, if you have a large apartment block and want to attract families, investing in robust security like a multifamily residential security system is important, as is being close to local schools and amenities. For example, if you are buying land and hoping to sell it in the future, you should have some idea about what kind of purchaser would be interested in that land down the road. Ask yourself these questions: who would be interested in living here? What are some smart ways this land can be used? Is this the right area for a small business? In every type of real estate investment, not considering your audience can have a huge negative impact on your success. 

1. Rushing and Flying Solo

Sometimes, investments require quick decision-making. But most of the time, rushing through a complicated problem or question, will only lead to mistakes and oversights. The possibility of making mistakes increases tenfold when any one person tries to take on too much without enlisting the help of industry professionals. Consulting with your property manager, your real estate agent, colleagues, and the internet will help you base your decision on expertise.

1. Ignoring Research and Data 

Mistakes and oversights are also much more likely to occur when individuals choose to ignore research or data that challenges or contradicts their visions, hopes and desires. No one wants bad news, and of course everyone wants their success to come with as few obstacles as possible, but that does not mean it is ever wise to ignore the facts right in front of you, or to skip the research phase entirely out of fear of uncovering information that complicates your plans. 

1. Poor Budgeting 

In real estate, there are so many opportunities and points at which expenses and costs can pile up in no time. Certain unexpected events, (like damage to a property due to a storm or blizzard, HVAC issues, roof replacements, etc), may lead to large but necessary expenditures. It is so important that your budget works in some wiggle room– some kind of financial safety net– to allow for such unforeseen expenses. Without proper planning, these kinds of expenses can seriously harm your ability to make money off of your real estate investment and end up costing you more money than you make. 

Additionally, expenses that seem small and minor should also be accounted and planned for within a budget. After all, five small expenses can be just as inconvenient and problematic as one large expense. In order to avoid potentially disastrous budgeting oversights, you should consider working with a professional financial advisor who specializes in real estate investing, who can help you put together a fool-proof budget.