Don't Make These Costly Mistakes! 32 Things to Avoid as a Real Estate Investor

Posted by Scott Jacobs, Broker on Wednesday, April 5, 2023 at 12:16:35 PM By Scott Jacobs, Broker / April 5, 2023 Comment

Are you considering a foray into real estate investing? Growing your wealth through investments requires knowledge and strategy to leverage the justice system to avoid costly mistakes. Whether you're a beginner or an experienced property developer, it's important to know what practices should be avoided in order to get the most out of your investment. This blog post reveals 32 things investors like yourself can do now to ensure that their venture into real estate investing is as successful as possible - without breaking the bank!

Why Avoid Real Estate Mistakes? Let’s have Smart Decision Making and Great Rewards

Starting your first real estate investment can feel intimidating - and it's true that there are challenges you'll face. But don't be discouraged! It is possible to make progress, no matter how much or little knowledge you have. That said, we want to help protect you from the 10 most lethal mistakes on your debut deal so that even if things aren’t perfect at least they won’t knock you out of the game completely. Use this article like a checklist for avoiding costly errors; with some extra care upfront, confidence will follow as soon as those keys find their way into your hands!

1.Not Having a Real Estate Investment Plan

If you're looking to join the real estate investing game, there's no time for rushing in blindly! It takes research and planning - think of it as a project that requires market analysis, comparisons and financial modeling. But have patience; this isn't an overnight success story – consider it more like playing chess than checkers: only through careful thought can you anticipate your opponent’s moves..and win big when done right!

2.Investing in Real Estate with Poor Financing

Financing a property can be tricky, as there are many elements to consider. High-interest rates or adjustable interest rate agreements paired with high monthly payments and balloon payments may seem attractive but should certainly give any potential buyer pause - especially since these types of financing plans often come with 'personal recourse', which means that you'll have to guarantee the loan yourself in one way or another. Residential bank mortgages usually offer much more straightforward terms: low, fixed interest for 30 years amortized over time without balloons attached. It's worth taking this security tradeoff though; other commercial lenders offering financed deals won't necessarily provide such protection on your first investment!

If you're considering a loan with sky-high interest rates and unreasonably short repayment terms, consider this: your property may not generate enough cash flow to cover the big monthly payments. Plus, when that balloon note comes due in 1-3 years time it could be hard — even impossible! – to refinance or sell if credit conditions tighten up. And let's not forget about personal recourse; should anything go wrong your lender will have their eyes on any other assets of yours they can get hold of in order to recoup those losses... Yikes! Knowing all this I always err on the side of caution where financing is concerned - after experiencing 2008 anyone would do well wise up from past mistakes like these too.

3.Making Losses at Auctions

Thinking of using an auction to purchase a piece of real estate? Remember that it's still gambling, so you need to be firm about your budget. Taking risks is fine, but if the investment opportunity seems too good to pass up - fight those urges and stay on target with your predetermined spending limit!

4.Buying a property without really seeing it

When it comes to investing, ignorance isn't bliss! Even if you have a bit of experience with investments and the property won’t be your home, always take time to go see what life will be like for tenants. Don’t rely solely on online photos or tours - they often don't tell the whole story.

5.Ignoring extra and hidden costs

No matter how great the shape of a property is, there's always potential lurking for some incidentals. Unexpected repairs may pop up at any time or you could be hit with an increased tax bill - that’s why it pays to plan ahead! When budgeting your rental income don't forget to allocate at least 5% extra in case something unexpected pops out of nowhere.

6.Paying too much for a rental property

Buying into real estate can be a great move, but don't fall victim to one common rookie mistake - setting your rent too high. Sure it looks tempting in the short term when you're eyeing that special splurge purchase, but increasing rents could mean more vacancies and less money down the line! Keep an eye on those rental rates and stay sure-footed for long term success!

7.Underestimating the costs of renovation on a rental property

Rehabbing a distressed property is often essential for making it rentable and profitable. Unfortunately, accurately estimating the cost of rehab can be tricky if you don't have experience in that area; gauging too low could quickly eat away at your profits! To ensure success when buying into BRRRR investment or flipping houses, come up with an accurate rehab budget prior to taking on any project - otherwise you may find yourself out-of-pocket down the line.

8.Leaving out the loan pre-approval step

If you're in the market for a home, make sure to get pre-approved by a lender. This is an important step - many sellers won't even consider buyers who don’t have proof of being pre-approved first! It can be tricky finding your dream house without that piece of paper, so it's best not to miss this essential requirement.

9.Having an Unaffordable budget

Setting a realistic budget for your dream home is key! Make sure you're thinking ahead and have room in the budget to account for taxes, maintenance costs, plus any surprises that might come up. By taking these factors into consideration upfront, you'll be better prepared to find an ideal property within reach.

10.Running Out of Cash

Your investment properties are like race cars - to make them go, you need fuel! Cash is essential for maintaining and growing your wealth building portfolio. If the coffers run low or empty, even a great property can start slowing down on success. To keep it running smoothly there are two things in particular that shouldn't be underestimated: repair costs and future capital expenses such as replacing roofs or heating-air systems. Don't let unexpected expenses take away from all of your hard work - look ahead regularly so they don’t sneak up on you when it's too late!

11.Choosing Bad Contractors

Investing wisely pays off! That's the lesson my business partner and I learned when we bought our very first fix-flip deal back in 2003. Unfortunately, it took us several expensive mistakes to understand why you should always opt for experienced contractors with good reviews - especially when investing in a rental property. After going through three painters, two heating/air companies and two carpet installers ,we were lucky to even make a small profit on that deal. Looking for reliable professionals who don't cost an arm or leg? Easier said than done... so take your time before committing – no buried treasure is worth such hassle.

12.Cheap-Skate Research

Whether you're searching for a home to live in or an investment property, it pays to do your research. Start by evaluating the city and area - is this somewhere that could be great now but even better with potential development on its way? It's also smart to look into local services and amenities; if there are any issues here, address them upfront! Of course don't forget about investigating the house itself too- from past renovations made to why it’s being sold. Do plenty of digging beforehand so when it comes time, you can make confident decisions based on all available information—you'll thank yourself later.

13.Not Understanding the Value of Due Diligence

Experienced investors may be tempted to rush into a deal with an as-is, no due diligence offer. But if you're just starting out in real estate investing, it’s best to include some buffer time! Include a short but reasonable due diligence period - that way you can back away from the purchase contract quickly and smoothly should any issues arise.

Before signing a real estate deal, it's essential to make sure you've got all the important details covered. An expert third-party property inspection will give you peace of mind about potential repairs and help guard against costly surprises down the road. You'll also want to research local zoning laws and rental regulations so there aren't any nasty shocks when it comes time for your tenants to move in. Finally, be sure that values are competitive with comparable properties - getting an outside opinion can save a lot of money over time! With some due diligence up front, investing in real estate can really pay off!

14.Bad Location Selection

Location is key when it comes to real estate. After all, not only does the location determine who will rent or buy your property but also how successful you'll be at investing! Studying both the best and worst locations in an area before buying can give valuable insight into what makes a good investment – one worth taking if you’ve got some experience under your belt… while beginners should probably steer clear of bad spots until they know better.

15.Trusting every word in an Advertisement

When it comes to property investments, familiarize yourself with the language of real estate ads - and always read between the lines! A home labeled as 'cozy' often means a snug size; whereas calling something 'quirky' could be code for needing some serious TLC. Don't be taken in by descriptions alone - uncovering all important details is key when shopping around.

16.Attempting to handle everything by yourself

If you want to make it as a real estate investor, don't try and go alone! Pulling together an experienced team of experts is the first step - from strategic industry players like agents and lawyers, all the way down to property managers or insurance brokers. With their help getting into success will be much easier than going at it solo.

https://www.jacobsandco.com/agents/ are here to help!

17.Not Doing Local Market Research

Investing in a new area can be intimidating, but having the right knowledge is key to success. If you're moving from kid-friendly suburbs to hip city apartments, look at how local rental markets are different and adjust your strategy accordingly!

18.Neglecting the Needs of Tenants

If you're considering a rental property that appeals to families, be sure it has the desired amenities they will appreciate - close-by playgrounds and good schools plus an inviting backyard. And if planning on buying a vacation home make sure its nearby attractions are up to snuff! Doing your research can help ensure you get the best bang for your buck with any potential real estate purchase.

19.Lack of a Professional Inspection When Purchasing a Home

Getting a home inspector before you purchase is like having your own personal Sherlock Holmes on the case! They'll dig up anything that could potentially cost you big bucks in repairs, and they’ll back it all up with photos. Wise move!

20.Having First Property You See Be Your Love

Getting ready to purchase your first ever home- whether you're investing or planning on making the place yours? Make sure you view at least three similar properties before committing - this way, you can be sure that whatever decision is made will fit all of your needs.

21.Not Researching the Neighborhood

I learned a valuable lesson through my experience of buying an inexpensive single-family house - location matters! Although the price was below market value and the financing terms were great, I wasn't able to consistently attract good tenants due to undesirable neighbors. That's why it pays off in the long run for landlords to invest slightly more money into quality locations with better surrounding neighborhoods. It will help guarantee you consistent occupancy rates from reliable renters.

22.Not Providing Easy Access for Showings

Buyers need convenient access to a home in order to make the most of their time. Not having clear pathways or enough parking can mean losing potential buyers as they may just move on without visiting your property. Think ahead and ensure you give viewers easy ways into your house.

23.Failure to Use Different Methods to Market Your Property

Selling your house doesn't have to be a headache. Make sure you reach the widest audience possible - give potential buyers as much info and pics of your home so they can get an idea if it is right for them! Don’t just rely on ‘for sale’ signs in the front yard or brief descriptions online, advertise everywhere – being comprehensive will help attract those dream bidders.

24.Rent pricing that is too high

Don't let yourself get stuck in a bad financial situation! Overpricing your home or rental can lead to costly losses - these resources stay on the market for an extended period of time and are usually sold at significantly lower prices than expected. Plus, renters won’t be fooled by higher fees – they always take the time to compare local rates before committing.

25.Spring is a bad time to try to sell an investment property

For many, the traditional advice to wait until spring or summer to sell a residential property may still apply. But if you're looking for an investment opportunity and need some quick cash flow, there's no reason why winter or fall can't be just as successful! Get ready by preparing your listing with prime marketing materials - then don’t let any season slip away without taking advantage of it.

26.Not Using a Real Estate Agent

Don't make the 'DIY' mistake! Let a real estate agent do the work for you and show your property to an increased number of potential buyers. If it's investment properties you're looking for, there are more options than ever at your fingertips - all thanks to access to the Multiple Listings Service (MLS).

https://www.jacobsandco.com/agents/ are here to help!

27.Treating Real Estate Investing Like the Stock Market

When it comes to real estate investing, patience is key. Sure, market fluctuations can be tempting – but hang on! Riding the wave of your best-performing properties means you'll continue getting those steady returns over time - not a quick buck like stocks and shares. Hold steady and reap the rewards in due course for greater long-term gain!

28.Picking the Wrong Real Estate Agent

When you're in the market for a new property, it's important to make sure your real estate agent knows their stuff! Before signing off with an expert, double check they've got experience dealing with precisely what kind of home or commercial space you want. After all, specialized knowledge can go a long way towards making sure buying/selling is as smooth and successful as possible.

29.Not Formulating a Plan of Exit

It's no fun to plan for a rainy day, but being an investor means you have to be prepared should things take a turn for the worse. What will your next move be when rental income stops coming in? Taking the time now - and maybe even consulting with someone like a financial advisor - can make all the difference if disaster strikes so you don't end up defaulting on investments down the line. Have yourself covered by creating that safety net!

30.Visiting a House Only Once

When looking for a new house, getting two experiences of it can be super helpful! During the day you may think it's perfect but seeing how safe and secure your area is at night could give you an entirely different opinion. Make sure to make that second visit - just in case there's something special about this place only seen under moonlight!

31.Lack of preparation for the unexpected

With the unpredictable nature of Mother Nature, planning for the possibility that you may be hit by a natural disaster can seem daunting. But budgeting for unexpected expenses will help you to stay afloat if your property suffers major damage and needs costly repairs due to floods or other calamities! Taking steps now is worthwhile - after all, better safe than sorry.

32.Failure to Acknowledge and Correct Mistakes

Embarking on your real estate investing journey. No matter what you learn, it's inevitable that mistakes will be made along the way - but don't let this discourage you! Each misstep can give a valuable learning opportunity if viewed as an experience in itself: think of every mistake like attending a seminar and taking notes about lessons learned so that when similar challenges appear again down the road, there are key tips for getting through them. Make education continuous by reflecting upon past ‘seminars’ with each new day; challenge yourself to become even better tomorrow than today!

As real estate entrepreneurs, we all want to aim for the stars - but it's not easy. It's a risk that can go wrong and be tough on us during our first deal. But this doesn't have to be seen negatively; rather these risks are barriers between those truly committed investors from pretenders who quit when times get hard. We should never forget about our mistakes along the way that'll give us scars in life, yet use them as lessons so we don't make fatal decisions going further down this path of entrepreneurship which is really what it’s all about: keep pushing forward!