11 rookie real estate investing mistakes commonly deal a fatal blow to the ambitions of first-time real estate investors.
The mistakes cluster around preparation, mindset, and money.
In this blog, I don’t just look at the 11 rookie real estate investing mistakes – I also look at some simple practical ways to avoid them or to lessen their impact.
Investing in property can be a rewarding journey, but things can go wrong for a number of reasons.
Mistake #1 – Failing to prepare a real estate investing plan
The first of the 11 rookie real estate investing mistakes is a lack of planning.
Many people get into real estate investing by accident. For instance, they may inherit a property in a will and decide to rent it out.
Even people who deliberately choose to go into real estate investing often forget about the planning aspect.
Lack of a clear written business plan setting out your property strategies, timeline and financial goals means that your real estate investment journey may be shorter than you wish.
AVOIDANCE: Avoid these risks by drawing up a clear plan, ideally with a property expert or professional. Work with a property or real estate coach or mentor if you lack knowledge or expertise to perfect your plan.
With every project, don’t just have a plan A. Also, have a plan B to deal with things that don’t work out as intended.
Mistake #2 – Getting overwhelmed by fear
Another potentially fatal blow to your real estate investment ambitions is fear.
On the surface, you could be super-keen and enthusiastic to get started. However, deep down you could be racked by deep-seated fears of failure. These fears or negative thoughts or approaches could eventually pull you down.
AVOIDANCE: Over-coming your deep-rooted fears requires the right mindset. Have you got the correct mindset to achieve your goals? Do you think like a property millionaire?
Employ the mental tools to overcome fears and negativity as explained by Susan Jeffers in her multi-million best-seller Feel the Fear and Do it Anyway.
Mistake #3 – Not having enough real estate knowledge
Insufficient knowledge of the intricacies of real estate is another big mistake of rookie investors.
It is easy to think real estate investing is simply about buying a bargain property and renting it out. Sometimes this is good enough for success, but often it is merely the start of potential success.
Lack of knowledge can hit you in a great many ways, including:
- Buying the wrong property in the wrong place for the wrong price
- Failing to add value that could easily be added before selling
- Selling too soon for the wrong price
- Embarking on the wrong property strategy at the wrong time of the property cycle.
Without the type and range of knowledge you need, your efforts to secure sustainable passive income from real estate for life is unlikely to succeed.
AVOIDANCE: Correct any lack of knowledge, experience or expertise on your part by:
- Attending courses, training, workshops, meetings
- Listening to real estate podcasts
- Reading books, magazines and blogs.
It is especially important to ensure that you are fully familiar with the basic concepts, rules and practices.
Some well-regarded books to read include:
Mistake #4 – Not having a “real estate mindset”
Many rookie investors fail by not having a fully operational real estate mindset. They may want to do things like:
- Achieve massive capital growth from property
- Make multiple streams of largely passive rental income
- Earn more, work more, escape the rat race.
But often they do not put in place the right mindset tools needed to reach their objectives – tools such as:
- Excellent time management
- Super-effective systems and practices
- Good habits, persistence, resilience and focus.
AVOIDANCE: Get the education and training you need to develop an effective real estate mindset – one that will help you to achieve your real estate plans and targets. Ignore property mindset at your peril.
Mistake #5 – Over-estimating the money aspect of investing
Possibly the most important of the 11 rookie real estate investing mistakes relates to money. In particular, newbie investors think they need to have vast sums of their own money to successfully invest in real estate.
Lack of money may cause you to stay away from some of the most profitable strategies and projects. However, one of the biggest benefits of real estate investing is the opportunity to leverage a relatively small down payment or deposit to acquire a property worth several times more.
AVOIDANCE: It is important to know that there are numerous funding sources available to investors in properties. Funds you may be able to access include:
- Money belonging to parents, family, friends, colleagues, and employers
- Equity you can release from a currently owned property
- Property mortgages or loans
- Pensions, investments or high-value assets which can be cashed-in.
If you live in England or Wales and your problem is getting a deposit together for your very first property, consider the many simple and effective ways to raise a quick house deposit.
Mistake #6 – Short-term thinking
A fundamental failing of rookie real estate investors is that they look at real-estate as a get rich quick opportunity. In fact, very often, it is a get rich slow opportunity.
The safest and easiest way to get capital growth, to make huge gains, is to hold property for a long time and allow property price inflation to work its magic.
It is possible to force or accelerate the value-uplift of real estate assets by numerous strategies including:
- Building, development, rehab, refurbishment, renovation, change of use, flipping
- Property sub-division
- Title splitting.
However, these strategies or approaches may not be appropriate for you if you lack the requisite knowledge or experience – and do not have a suitable real estate partner, adviser or coach to assist you.
AVOIDANCE: As a rookie, only take on property strategies which are within your capability. The easiest strategies for investor newbies to handle usually involve minor rehab works followed by sale or long-term renting.
Mistake #7 – Being over-cautious
Another common mistake of new real estate investors is the tendency to be over-cautious in their approach. Of course, being over-confident or reckless is a flaw – being super-cautious is equally a problem.
If you are too cautious, you may end up playing safe for too long – thereby missing out on the riskier more profitable real estate strategies and opportunities.
With real estate as with most businesses, greater risk tends to equate to greater rewards.
AVOIDANCE: Avoid the tendency to be too conservative or conventional in your approach. You should respect risk, but not be afraid of it. Contrarian thinking often brings unexpected rewards.
Mistake #8 – Taking excessive risk
The reverse of being over-cautious is taking too much risk. It is one of the most important of the 11 rookie real estate investing mistakes commonly made by inexperienced real estate investors.
While risk-taking can reap big rewards, it can be disastrous where newbie investors end up taking on strategies or projects beyond their capability.
AVOIDANCE: You can minimise the risk of taking on excessive risk by carrying out full due diligence and detailed planning in advance of embarking on any project.
Mistake #9 – Not seeking out enough help
Many new real estate investors flounder as a result of doing too much. They attempt things they are not qualified to do.
Perhaps to keep down costs, they don’t hire the help they need.
If you want to grow and accelerate your real estate investment exploits, you need to learn how to plug into people power to succeed.
AVOIDANCE: You can reduce the risk of biting off more than you can chew by having a good support system around you. That could include:
- A high-quality power team of contractors, workmen, experts, and specialists
- An experienced business partner or joint venture partner
- A suitably qualified business accountability partner
- A real estate advisor, mentor or coach
- Advice and assistance from relevant property professionals such as lawyers, accountants, and real estate agents.
Mistake #10 – taking an emotional approach to investing
One of the worse of the 11 rookie real estate investing mistakes is taking an emotional instead of a rational objective approach to investing.
As an investor, you are unlikely to make the best financial decision about a property if you become emotional in your decision-making. Investors don’t buy a property for themselves, they buy a property which is a good investment.
You should never be an emotional buyer or seller when you’re investing in real estate.
AVOIDANCE: You can remove the risk of making emotional decisions by always relying on the objective methods of measuring the desirability of a specific investment. Those methods include calculating:
- Gross rental yield
- Net rental yield
- Return on investment (ROI)
- Return on capital employed (ROCE).
Mistake #11 – paying too much for a property
Perhaps the worst error any property investor can make is to pay too much for a property. Property experts often say you make your profit when you buy.
By paying too much on your purchase, you at least depress your profit on a subsequent sale. If you intend to sell relatively soon after your purchase, paying too much could easily put you in a loss-making position.
AVOIDANCE: The best way to avoid over-paying is to ensure that you conduct thorough price research before entering a contract to buy.
You need to be particularly careful with properties which are:
- Rare or unique
- Badly rundown or dilapidated
- Without local price comparisons.
Where you plan to carry out building works to a property after purchase, it is vital to accurately ascertain the amount of work necessary – and the likely cost.
Where appropriate, engage a surveyor to identify any structural or other serious problems with the condition of the property. You can also ask the surveyor to provide a professional valuation – helping you to decide the right price to pay.
Have you done any property investing? Have you made any of the mistakes mentioned in this blog – or any other property investing mistake? Please leave your comments or observations below.
You may be interested in the following blog:
A high risk for all real estate investors, not merely rookies, is buying property off-plan…before the commencement of the construction stage. The rewards can be high – but so too can the risks. Learn more about the issues, pitfalls, and dangers of buying a property off-plan.
About the author
Dalton Barrett is a long practising property solicitor, investor, PRS registered property coach and Amazon author. Read about his unconventional worldview of property here
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Dalton Barrett, Solicitor
Rebel Property Coach
My website is: www.rebelpropertycoach.com