Real estate investment is an art as much as it is a science, and errors in judgment are part of the learning curve. However, if you pay attention to those who have gone successfully before you, you can avoid some common missteps. There are five huge mistakes that can cost investors far more than a few dollars, if they’re not careful.
Failure to Plan
Investors who focus on single transactions rather than a long-term investing plan can get tripped up by their own short-sightedness. A property may seem like a steal, but if you haven’t done your due diligence to find out whether it may actually be profitable, or whether it was a good decision long-term, you’re chasing your own tail.
Do your homework to determine the locations and property types you want to invest in. Create a buyer’s list so that you’ll already have clients to match up with properties you come across. Set a timeline of goals. Then, when you find a great property, you can determine whether or not it fits in to your greater plan, and make a wise decision.
Underestimating Time, Work and Expense
Real estate is fraught with all kinds of pitfalls you may never see coming, from the tenant who skips town to the major plumbing issue the inspector fails to disclose. You can pretty much bet that any endeavor will be more costly, more time consuming, and require more work than you think it will. It’s best to generously overestimate the time, expense and elbow grease a project will need, then decide whether it will still be profitable before investing.
Real estate investment is fast-paced, but building a business and making a steady profit is a slow process that can have a long learning curve. Expecting your efforts to pay off immediately in a big way is the surest way to become discouraged and disillusioned. If you’re realistic about your opportunities, and you’re patient with yourself and the process, you have every chance of becoming very successful.
If you can’t get excited about a deal, or if you only go by numbers and never trust your gut feelings, you won’t last in this business. That said, getting overly-emotional about a property, a deal, a client, or a partner can spell disaster. You have to be able to walk away from any deal, any property and anyone if things aren’t going to work out from a business perspective.
Buy properties because they’re good business decisions, and not because you love them. Let properties that aren’t profitable go, even if you have to swallow your pride. And always temper excitement with a diligent reality check.
The minute you decide there isn’t anything left for you to learn, you’ve as good as failed. Investors who won’t listen to wise advice, won’t accept criticism, and insist on going it alone are doomed to mediocrity at best and failure at worst. Seek advice, learn from your mistakes, surround yourself with knowledgeable people you can rely on for help, and stay open to new ways of doing things.