Although there are dozens of mistakes that one can make while investing in real estate, the following 10 are the most common:
1. Expecting to “get rich quick”
This kind of wrong-headed thinking is fueled by self-appointed gurus who produce infomercials that make it sound so easy to get rich in real estate.
But making money from housing is not easy. Yes, it is a good long-term investment, but so is putting your money in a mutual fund, which is a lot easier.
These “gurus” don’t talk about all that hard work, they simply want to involve as many amateurs as possible in the market so that the “experts” can increase their profits. If you want to produce income and capital growth, you have to be smart and be willing to work, research, and learn.
You also have to understand your risk tolerance. So if you want to get rich quick maybe you should focus on another type of investment. Remember that the shorter the investment period and the bigger expected returns, the bigger the risk.
2. This is not a one-man show
The key to success is building the right team of professionals. At the very least, you need good relationships with at least one real estate agent, an appraiser, a home inspector, a closing attorney and a lender, both for your own deals and to assist with financing for prospective buyers.
Investing in real estate is not a game, but a business, and you cannot build a successful business if you do not have the right people to support and guide you every step of the way.
Always remember that it takes only one mistake to make your investment a failure. The old wise quote applies here too: “You are as good as the people that surround you.”
3. Failing to plan, planning to fail
Some investors buy a property because they think they got a good deal and then try to figure out what to do with it. That’s working backwards.
First, find the plan, then know what you expect from your investment, and then find the property to fit the plan.
Pick your investment model and then go find the property that matches that. Don’t find the strategy after you find the property.
The problem is that most people look at real estate as a transaction instead of as an investment strategy. You need to know in advance what is your budget.
The number is the number, and you don’t go above that, no matter how much you like a property. Successful investing is about setting rules and following them, and a budget is one such rule.
The best way to solve the problem is to search far and wide and make offers on multiple properties, then start seriously considering several options that fit your requirements.
4. Buying overvalued properties
Some real estate investors do not make any money simply because they pay too much for the properties. If a property is overvalued, then the profit is locked in once the investor buys it.
Analysing the market and doing proper research in order to identify the range of the market values in the area that you are interested in is critical. If you do not know how to do this then hire a professional to do it for you.
If a potential buyer makes a mistake in the market analysis, he might end up paying too much and getting surprised later when he does not make any money.
This is a common mistake that buyers, who confuse the asking prices with the actual market values, commit.