As a new real estate investor, you’re probably excited to get your first deal done - and you should be!
Taking action is what’s going to get the deal done. You don’t have to know everything there is to know before doing a deal. But, having been around the block and making all the mistakes a real estate investor can possibly make, I know that there are certain things you should avoid at all costs in order to be successful.
Real estate investing is full of all kinds of opportunities to make mistakes. And you will make them. We all do. It’s part of the learning process. But there are certain mistakes that you don’t have to make because those of us who came before you have already made them and can share our experiences with you.
After reading this, you’ll be equipped to make the right decisions as you're going through the deal process.
Here Are The 5 Biggest Mistakes To Avoid In Real Estate Investing
1. No Knowing Your Market
This is probably one of the biggest mistakes you can make as a real estate investor. It’s crucial that you know what’s happening in your market.
- If home prices are appreciating or depreciating
- What comparable homes are selling for
- What people are looking for who move to the area - are they looking for good schools and nice parks and playgrounds or trendy restaurants and shopping?
- What each neighborhood has to offer
Knowing all of this is going to help you better understand your buyers and sellers, craft better purchase offers, and more accurately gauge ARVs for pricing properties to sell.
Not knowing the market where you’re investing leads to all kinds of problems like making offers that are too high or too low, pricing properties for sale too high or too low, and over or under-improving properties without knowing what the market demands are.
If you are in tune with what’s happening in your market, you will see great results.
2. Not Knowing The Numbers
The numbers are what make or break every deal. Real estate investing is not a “fly by the seat of your pants” type of business and, if you treat it that way, you will quickly fail.
The numbers have to make sense if you want to make money on a deal and guessing is not the answer. You have to know that the numbers you’re plugging in during the analyzation process are accurate.
One slight change can blow up the whole deal so knowing from the beginning what the numbers need to be for the deal to work will help you make better decisions during the process.
3. Not Understanding The Process
Not understanding the process from the beginning to the end of a deal will quickly have a crippling effect on your business.
Make one wrong move and it could kill the deal.
If you’re new to real estate investing, join a coaching program, join your local REIA to connect with other investors, and use a real estate agent for your first few deals. They will guide you on what to offer, paperwork, and even what type of work should be done to sell the property.
4. Not Having An Exit Plan
When you decide to put an offer in on a property, you should already have an idea of what your exit plan will be.
What you offer to buy the property for is largely based on how you plan to sell it later. It will also help you determine how much work you can put into it, how much wiggle room you have for negotiations, how much you can spend on marketing, and how long you can hold onto the property before breaking even or losing money.
You should know at the very beginning if you plan to:
- Wholesale the property
- Rehab it and sell to a retail buyer
- Buy and hold
Knowing at the beginning what your plan is for the end will create the pathway for everything else. Without that information, you’re making important business decisions based off of nothing more than ideas and guesses. Are you confident enough to trust your business to a blind guess?
5. Not Sticking To The Rehab Plan
Making the highest returns begins with knowing which repairs to make and which ones to avoid. Certain repairs will yield a positive return on your investment while others will be a waste of time and money.
There are just certain things that buyers are no longer looking for, which also goes back to number 1 - knowing your market. Along with knowing what buyers are looking for, you also have to know what the local neighborhood demands.
For example, if you’re rehabbing a home in an upscale neighborhood where all the houses have granite or marble countertops, putting in laminate and asking full market price will be a hard sell. But if you know your market, you know what buyers in the area are looking for in a property, and you know what comparable homes are like, then this part will be easy.
Are the majority of your buyers families who need an extra bedroom as opposed to a home office? Do you live in an area where backup generators are necessary? These are important things to consider when planning your rehab.
When you decide to rehab a property, you should already have a complete repair estimate done, which will then help you create the full rehab plan. Once you’ve done the numbers and created your rehab plan, it’s important that you stick to it.
It’s easy to get caught up in the rehabbing process, adding more and changing out materials while you work. Stick to the plan because this can quickly snowball and you’ll find yourself in dangerous territory, where the numbers no longer work.
Remember, good quality materials are good enough. You don’t need to use top of the line materials in your rehabs. Stick to quality, cost effective materials, stick to the plan and you will be fine.
The first year is often the most difficult. I hope that you learn from my mistakes and are able to avoid making these crucial missteps in your own business. If you take these to heart and continue learning and investing, you should see your business growing at a rapid pace in no time.
Any other critical mistakes you’ve made that you’d like to share? Please leave a comment below so we can all continue to learn from each other!