Getting involved in the real estate business is a very exciting commitment. Whether you are embarking on a new career or committing to investing on a part-time basis, the early stages can be exhilarating. In your excitement, however, you need to remember why you are getting involved in the business in the first place. Taking on bad deals or aligning yourself with people that don’t share your vision will cause any good feelings to quickly fade. Having said that, nobody is immune to making the occasional mistake. Instead of making a mistake that sets your business back, try to learn from the people around you. Here are five common investor mistakes, and how you can avoid making them yourself:
1. Not trusting the numbers: The real estate business is all about the numbers. They are everywhere you look, from lead generation to budgeting. Often times when you are just starting out, there is a tendency to try to fit a round peg in a square hole. Instead of projecting numbers that are unrealistic, look at the real data in front of you. There is nothing you can do to a property to get the rent from $800 to $1500 a month. Any good work you do on a rehab does not mean your house will be the highest sale on the block. By not trusting the numbers that are in front of you, you increase the chances of making bad decisions. Some of these decisions can wind up being very expensive. Do your homework. If the numbers tell you to walk away, don’t be afraid to do so. In time, you can learn how to trust your gut and use your instincts. When you are just starting out, let the numbers be your guide.
2. Not listening to advice: Almost anyone you talk to has an opinion on the real estate business. Most people only hear part of a story or get half of the information. Good, bad or otherwise; when you are just starting out, you should listen to as many different opinions as possible. Not every opinion is worth acting on, but they will give you a good idea of which way to go. It is important to find one or two local investors that you can lean on for advice. Someone with years of experience may be able to help you stay clear of a situation you should avoid. Always do your own research and never commit to doing anything solely based on what someone says. You don’t have to act on opinions, but you should listen to all of them. You never know when you will hear an idea or a different way of doing things that will change your business.
3. Relying on others for information: There is always tons of data on every prospective deal. Where you get your information from can make all the difference between a good deal and one you should avoid. A lead you get from a local wholesaler will be filled with cap rates, vacancy factors and other data. There are times when the information they get is outdated or incorrect. If you make your decision to offer based solely on these numbers, you have nobody to blame but yourself when something goes wrong. Due diligence is a huge part of being a good investor. You need to take the time to find out the most accurate data possible. This could mean taking a ride to the local town hall or staying on hold with the town clerk longer than you anticipated. This extra effort is key in getting the right information. Your real estate agent or wholesale contact may have good intentions, but it doesn’t mean they are right. Your business is too important to trust someone else.
4. Understanding costs: Regardless of which area of the business you want to get involved in, there will always be costs associated. Seemingly little things like title pulls, credit checks and even business cards can add up. Bigger costs like direct marketing campaigns and technology upgrades can be prohibitive. You are running a business, and need to know where every dime of your money is going. Too many new investors get involved with deals and end up disappointed in their bottom line. In most cases, this is because of a failure to understand all of the costs associated. If you aren’t familiar with rehab costs, take a walk up and down the aisles of a hardware store. Almost everything you do in business will cost money. It is up to you to understand each and every expense you make.
5. Not working hard enough: Entering the business does not mean you will become an overnight success. It may be months before you secure your first deal. It is no secret that the most successful investors are those that work the hardest. The first six months in the business can be the most frustrating times you have. You may bounce around from niche to niche, all the while experimenting with marketing ideas that yield limited success. In spite of this, you need to outwork your competition. Deals will not just fall into your lap.
It is human nature to make mistakes. The trick is to try to avoid them and never make the same mistakes twice.