When you're first getting started out in the real estate investing game, you're a novice. A newbie. You're green. You're all those things that mean, "I have no idea what I'm doing." And you know what? That's okay.
We all start out not knowing anything; what's not okay is to stay in that state or to make major decisions in that state. Finding mentors, doing research, keeping up with current real estate trends, and reading blogs like this one (I'm not above a shameless plug) are all things you can do to make sure that you stay on top of the learning curve. What is even MORE important is learning from those who have made mistakes before you! Never listen or take advice from anyone who says they have never made a mistake or claim the mantel of perfection as an investor.
Each of the three mistakes listed here were made countless times by so many real estate investors from 2004 to 2012 that it is hard to find many investors who got started in this time period who did not make at least one of them.
There are a number of different mistakes that real estate investors who are just starting out tend to make in the "real estate basics" department. Let's just mention a few of them right now and talk about what you can do to avoid them as you get started in the Memphis real estate market.
Overextending Yourself Financially
Although risk is a necessary part of the real estate investing business, you've got to learn to gauge how much you can and should expose yourself to. When you're just getting started out, especially, you don't want to overextend yourself. Even if you have the means to do so, it doesn't make sense to go on a spending spree with properties. Steady growth is what you're going for, so don't feel the need to be overly aggressive in the beginning. I have a saying that I tell investors and it relates to my own experiences. I made the mistake of buying properties because "I could" and, a times, I forgot the basics and quit buying properties because "I should". It was a major mistake that caused a lot of financial stress from becoming over-extended on properties that did not meet all of the criteria of my portfolio.
Underestimating Landlord Responsibilities
A lot of real estate investors rely on a property management company to handle the day-to-day business of their rental properties. However, some real estate investors decide they'd rather manage their own properties. They want to take a hands-on approach to real estate investing and be involved in the day-to-day minutiae of everything that goes along with being a landlord.
And then there are those who think they want to manage their own properties.
Taking on the landlord responsibilities for your rentals can be a tempting strategy. You have your finger on the pulse of what's going on with your properties, and you don't have to pay a property management company to keep an eye on things. However, there's a very important aspect of being a landlord that people tend to forget about: It's a heck of a lot of work. The relatively few dollars saved by not hiring a professional property management company hardly make up for the sweat and hours many hands-on landlords have to put in.
That's not to say that there's anything wrong with taking the landlord responsibilities into one's own hands. There's not. Where people run into trouble is taking on the responsibility without knowing what they're getting into. Are you prepared to vet tenants, collect rent, and field calls at all hours from disgruntled tenants? Being a landlord is not for those who view real estate as simply another investment in their portfolio; it's a 24/7 job. Before you decide to take on that job, make sure you have a comprehensive understanding about everything that goes into it.
Putting Off Maintenance/Repairs
Yeah, you guessed it. Just don't do this. Whether your excuse for putting off repairs is cheapness (let's call a spade a spade) or simple procrastination, you're not doing yourself any favors by waiting to make repairs. Little problems tend to grow into big issues when left alone, so stay on top of your properties' maintenance. ON the same point, simply putting a band aid on a major problem is like going broke from a thousand tiny paper cuts. It will be a long slow process that you may not realize is happening until you are in too deep. I have personally learned that I will get exactly what I pay for, so I choose to pay for new equipment instead of duct tape repairs.
Do you have any other "real estate basics"-type blunders newbie investors should be wary of? Share them with us in the comments!