Mistake #1: Paying market rate
Experienced investors understand the key to a successful transaction is purchasing properties under current market value. The beauty of real estate is there is always someone moving, getting divorced or passing on. Whatever the reason, there are always motivated sellers in the market. Find them and you can create amazing deals.
Mistake #2: Making emotional decisions
Some new investors come across what looks like a deal, immediately fall in love and let it cloud their judgment. As an investor you need to make logical, informed business decisions, stick to a strategy and criteria, filter out the duds, and cherry pick the best homes.
Mistake #3: Not making the most of financing
Seasoned investors understand enhanced success can come by using other people’s money (banks, partners etc). Real estate is not just about sticks and bricks — real estate is about leverage. While using other people’s money is a highly effective way to increase return on your own investment, if not done correctly it can be a “newbie” investor’s demise. Ensure you have sufficient reserves in place to handle not-so-pleasant surprises.
Mistake #4: Not understanding exits
Television makes it look easy to find a home, improve it (usually in 60 minutes) and make a massive profit. Generally this doesn’t happen. Starter homes are the fastest to sell and most liquid properties. They appeal to the largest quantity of prospective buyers — those who are just entering the housing market and investors interested in purchasing it as a rental.
Purchasing properties that generate more monthly income then expenses is a common way to minimize your risk and allows you to take the sometimes-needed time to find the right buyer at the right price.
Mistake #5: Buying in bad neighborhoods
No matter what the timing, market conditions, financing options, cash flow or cap rates, real estate’s No. 1 rule is still “location, location, location.” If you choose to buy in a bad neighborhood, you better have gotten an unbelievably low price.
Mistake #6: Doing it on your own
To minimize risk and set yourself up for the highest probable success, surround yourself with a team of professionals and experts. Be willing to take advice and lean on others for the services that will impact your ability to succeed. Use title companies, real estate attorneys, contractors, appraisers, inspectors and real estate agents.
Mistake #7: Speculating
Most new investors get into real estate as the market is going up. They think they are safe when they don’t get the best price because the market is moving up and any lack of negotiation skills will be made up for in the upswing of the market. This is as much of a gamble as picking a stock and hoping it goes up. While this can sometimes work out, the No. 1 thing to remember is to purchase properties below market value.