Real Estate Investing is the greatest wealth builder in history, but it requires a focused plan, determined effort and time. And, like all endeavors, it won’t always go as planned.
“I have not failed. I’ve just found 10,000 ways that won’t work.”
– Thomas Edison
We’ve all made mistakes. It’s just a part of living, trying, and learning. And, it will happen to you as part of your investment career eventually, if it hasn’t already.
Wouldn’t it be nice though if you could learn from the mistakes of others?
How much could you save in time, money, and frustration by learning about the most common mistakes in real estate investing?
What would that be worth?
In this article, you’ll learn the 10 common mistakes of new real estate investors. If you’re just starting, print this out. Refer to it often.
If you are already a real estate investor, review this list again. Make sure you don’t forget the fundamentals. Your balance sheet will thank you.
1) Not Following Money Rules
Have a set of money rules and follow them. Your rules can be as simple as or as complex you like. Just be consistent. Maybe you only want to use a certain amount of leverage on your projects. Or, you want to place no more than 20% of your investable assets in any one project. Whatever your money rules are, work with your advisory team and follow them.
2) Not Consulting with Your Team of Experts
Your team is an invaluable asset. Not consulting with your team of experts/advisory team on every investment is a mistake. Your team should include the following resources:
- Your Tax Strategist
- Your Entity Specialist/Attorney (make sure they understand real estate investing)
- Your Mentors and Coaches.
Successful investors like Sam Zell, Donald Trump, and many more consult with their teams regularly. So why not mimic what successful investors do?
3) Waiting Too Long
Real Estate Investing success, contrary to late-night TV hype, requires time. Two things tend to hold back new investors. The first is lack of awareness. The second is fear. If you’re reading this post then we can assume that the first issue is taken care of. Fear then is the issue. And fear – defined as False Expectations Appearing Real – has one universal solution.
Start now. Learn about investment due diligence, risk management, and how to build a stable real estate portfolio. This will help you overcome fear and participate in the best buying opportunity of your lifetime.
4) No Real Estate Investment Plan
A plan is literally a “road map” to achieve your goals. Without a well-defined plan, chances are you will skip valuable steps in your property purchase decisions. And, if your plan is not written down, your thoughts are not organized and are aimlessly floating around.
Look at it this way. All successful investors have written explicit plans to achieve their goals. It’s that important.
After you start using a real estate investment plan consistently you’ll find that you’ll reach your goals much faster and easier with less stress.
5) Not Purchasing Property for Cash Flow
The key component of permanent wealth is cash flow. This is because cash flow from passive investments, from a return quality perspective, is one of the best ways to make money. It has great tax advantages. Your asset is making money for you before you sell it. And, you have a high degree of control over that cash flow stream compared to almost every other investment.
Don’t bank on the appreciation. No one can predict the future. Cash flow pays you now.
Real Estate Investing is the greatest wealth builder of all time, but it’s not without risks.
6.) Analysis Paralysis
Investors get “stuck” running the numbers over and over (and over and over) again. So afraid they are missing something…anything. Or they play out all possible scenarios to see what happens.
If you can’t break through this syndrome you may never buy…or worse you’ll take too long and regret it forever.
Getting unstuck requires breaking through the fear. The magic cure for fear is knowledge. If you’ve analyzed and understood the market, you know the neighborhood, you have the best teams and you’ve consulted your team of experts and you look good on all levels, invest. Leverage their knowledge, make a decision, and make some money.
7.) Under insuring Property
Do this now, and always: Get the recommended amount of insurance on your rental property. Be smart and protect yourself from the unforeseen and unpredictable.
Ensure that you have:
- Full replacement coverage
- Rental coverage (income replacement in case of a repair event where the tenant has to move out)
- Satisfactory liability coverage
- Umbrella liability coverage
Many investors cut corners by purchasing the minimum amount of insurance and are sorry for it later.
There is a wise saying: “You can’t purchase insurance after the fact”…Be safe not sorry!
8.) Not Protecting Your Assets
As your portfolio grows, asset protection becomes increasingly important. Yet, many investors either forget or put it off until “later.”
Create entities and leverage qualified legal counsel to protect your personal assets (we use LLCs – Limited Liability Companies). These are crucial to protect you from lawsuits. And let’s face it folks, we live in a sue-happy country.
Think of an LLC as a “fire wall” placed between your property and you for legal and financial protection. Should an accident occur at one of your properties, a person can only sue the owning entity. Without the entity in place, they can sue you directly.
If you own rental properties and haven’t already, put the structures in place today to protect your personal wealth and limit lawsuit exposure.
9.) Purchasing Property Without Ample Reserves
One more common mistake of new real estate investors is not understanding that you need to have a “reserve fund” until the property can create its own during the first year of operations.
Having adequate reserves is vital to weathering storms that come when owning property (and they will come). Be it an unforeseen market shift or something else, you will need your cash reserve to get by in tight times.
We always raise funds to both acquire and provide sustainable reserves to protect our assets. We have the discipline to be conservative and keep the reserves liquid in the bank to protect against that rainy day. We do this for all deals and so should you.
Remember, the market always wins…plan correctly, raise funds adequately, and be disciplined/conservative in maintaining your reserves.
10.) Letting Your Business Run Your Life
We teach our students/investors to treat your business as if you are in a slow 10-year marathon race. Create systems and controls for your real estate investing business…create your machine.
With systems in place we then teach – “If you work on your business you will gain wealth; if you work in your business you will burn out”.
Do not do everything yourself. Delegate tasks whenever feasible to team members – leveraging their strengths and expertise. This allows you perspective and vision to truly lead.
Every investor has war stories they can share with you. Feel free to share in that “learning experience”….and chose to emulate success.
Find someone (or a team of mentor’s) who’s done what you want to do. Follow their advice. Do what they’ve done. And you’ll get what they’ve gotten. It’s just that simple.
We at 37th Parallel Properties are dedicated to mentor and coach you to be a Successful Real Estate Investor. This is why we have shared these 10 Most Common Mistakes Investors Make. If we can save you from these mistakes you will climb that ladder of wealth much faster with less cost – emotionally and financially.
Keep this list handy and refer to it as you invest…it will save you a lot of money and heartache in your investing career.