At the risk of sounding repetitive, one of the biggest mistakes new investors make is neglecting to treat real estate as the business it is. Even if you only invest part time, you still need to recognize the impact every expense and decision has on your business. It can be very easy to ignore your personal finances and only focus on your bottom line, but doing so is largely counterproductive. You need to know what you are spending and what you are getting in return. Before you look to buy any property, you need to get your personal finances in order first.
There is a certain degree of patience and discipline needed to be a successful real estate investor. One of those disciplines is understanding that you should not initiate a deal unless your finances dictate so. It is understandable to want to jump right into the business with both feet, but if you do so without a net it will affect every decision you make. You will look for deals that only produce short term profits, ignoring the big picture and clouding the way you think on every deal. If you start out chasing the dollar instead of focusing on good deals, you may not last very long.
In addition to how you approach deals, you also need savings and a solid financial footing to run your business. No longer is there a need for a dedicated office space, but you will need money for basic business expenses. A computer, updated phone, website, business cards, fax machine, networking fees and possibly a real estate license are all items that may be needed. These are the basic items you should have if you want to get started. If you are already leveraged in your personal credit cards or your savings is running low, this will only serve to increase your debt coverage and further impact your business. Buyers, sellers and fellow investors can sense desperation and may not want to work with you because of this.
If you are having trouble paying your bills, not getting a consistent paycheck will only compound your problems. Real estate can be a tremendous moneymaker, but it is far from what is considered a steady income, especially when you are just starting out. Even if you find a deal today, it could be several weeks or even months before it closes. If you are taking money from your savings to bide time until you get a check, you will have already spent your profits before you get them. If something ever happens and the deal doesn’t close, you will be in for a world of trouble. This is why it is important to wait until you have a clearer financial picture and you can go several months without a paycheck.
There will never be a perfect time to start and you will probably never have as much money behind you as you would like, but you need to be comfortable with your finances when you are starting out. The first few months will set the tone for your business and you need every resource to give yourself the best possible chance to be successful. If your personal finances are not in a good place, you will eventually have trouble with your business.