4 Fatal Mistakes Newbie Real Estate Investors Make

Posted by Chris Clothier on Wed, Aug 3, 2016

investinginrealestate-mistakes-newinvestors.jpgEvery real estate investor starts off somewhere, and that somewhere usually comes with more than a handful of mistakes. Many small, some large and very costly. It’s all part of the journey! Growing pains are just part of investing in real estate and a fact of life, no matter where you go or what you do.

That said, there are some mistakes that can be devastating for new real estate investors—potentially ending an investor’s career before it’s even started.

Granted, nearly every mistake we’re going to mention can be turned around and salvaged for an investor willing to put in the work and effort necessary to push through and bounce back.

Some, however, may take more work than others to overcome.

4 Career-Ending Mistakes New Investors Make

1. Mishandling Money

Perhaps the biggest and most devastating mistake new real estate investors can make is mishandling their resources—namely, money. This can happen in a few different ways. It can happen from simply miscalculating (or not calculating) your cash flow for an investment property, leading to negative cash flow when a property’s projected revenue is overestimated. It can mean not accounting for all of the various monthly costs for your investments (it’s more than just the mortgage, after all!).

It can also mean not planning a cushion or an emergency fund in case of disaster, forgetting insurance for fire or flood, or even underestimating the cost of renovations.

Hidden costs, underestimations, and simply not running the numbers when you should can all drain your account quickly and put your finances into jeopardy.  

When your finances are in jeopardy, your happiness as an investor is in jeopardy.  The quickest exit for a real estate investor from the real estate investing trade is to mishandle the financial side of the equation.  The stress created is what leads more and more investors to decide investing in real estate is not for them.

2. Expecting Instant Gratification

You will not get rich quick in real estate investment.

Anyone who tells you differently is trying to sell you something. Nothing comes instantly in this business, and it certainly doesn’t come without effort on your part, even if you’re investing passively.

There are a lot of moving pieces to investing in real estate. There’s planning and strategizing—it doesn’t just happen and fall into your lap. As with any investment, there’s going to be risk. You’ve got to decide how much of it you want to take on, and where you want to be.


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3. Taking on Too Much Too Soon

Speaking of trying to get rich fast...many new investors are guilty of biting off more than they can chew. They try to scale too quickly. Buying another investment property before they should, expanding into a new market or type of investment before they’re adequately prepared, or taking on something without the knowledge and resources to handle it...it can all lead to disaster!

While some investors may be able to handle it for the short term, it’s doubtful they can sustain themselves for long. If they spread themselves too thin, it’s going to eventually catch up to them. That’s why it’s so important to really plan things out, run all the numbers, understand your own personal risk tolerance, and know exactly what you can handle.

Biting off more than you can chew is going to stress you out, and that ultimately compromises your ability to make good decisions!

4. Investing in the Wrong Properties

What is a bad property, exactly?

This mistake is a little less fatal than the rest, simply because most investors can still make it work. You just won’t see the returns you could be seeing. Here’s the thing: a lot of new investors make the mistake of buying extremely cheap properties when they first start off in real estate investment.

It seems like a good idea at the time.

Keep your costs low. It’s what you can afford. It makes sense.

But when you buy cheap, you rent cheap, and your positive cash flow month-to-month will also be low. We can also bet that cheap properties are not going to be in desirable areas (granted, there’s a chance that could change over time, if you’re lucky and the area goes through redevelopment). It’ll be a tough resell and your property values likely won’t be stellar.

Cheap properties also come with cheap renovations.  Cheap renovations lead to more long-term costs of ownership as deferred maintenance comes due.  Properties that cost $40,000, $50,000 to $60,000 may be good investments for some investors...but certainly not all investors.

Instead of snapping up the cheapest properties you can find, it would behoove you to invest in quality. Trust us. It might cost more on the front end, but you’ll make more monthly in your positive cash flow, have better values overall, and own properties that you’ll actually be proud to have and show off.

If you want quality properties in great locations in some of the strongest markets in the country, plus the advantage of knowledgeable, experienced real estate experts, turnkey real estate investment with Memphis Invest is the way to go.

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Topics: investing mistakes to avoid