Real Estate / Common Mistakes that New Investors Make / Chapter 3
Common Mistakes that New Investors Make
- Some of the red flags you have to watch out for before investing in a property
- Common mistakes that you should avoid as a new investor
In this chapter, you will learn. . .
The thought of making huge profits out of your investment properties is exciting, wouldn’t you agree? But sometimes—in fact, most of the time—new investors get carried away by the excitement that they forget to be careful when making investment decisions. And the results are rarely great when that happens.
Of course, I don’t want you to go down the same road. I want you to make as few mistakes as possible as you begin your career in real estate investing. So for the entire chapter, I will be walking you through the most common mistakes that new investors make and some other things you need to watch out for before making an investment.
Some red flags you should watch out for
Finding investment properties that you can potentially flip for a good amount of profit is definitely exciting. BUT, and I say this with all letters in caps, you need to BE CAREFUL.
Don’t let your emotions get in the way of your logic.
Yes, you should expect that an investment property won’t look all great. And yes, you should expect to spend on remodeling and repairs before you could sell it for a good price. But that doesn’t mean you can totally ignore all structural damages.
Unfortunately, most new investors fail to identify potential signs of trouble when they see an investment property that they think suits their criteria. So what happens is they end up buying a property that’s got a lot of unpleasant surprises waiting for them.
Thankfully that doesn’t have to be the case for you. So here are some red flags that you shouldn’t miss when you’re looking for your first investment property.
One of the biggest deterrents to any interested home buyer is the presence of mold in a property. Sure there are experts out there who could help you get rid of it, but their services often cost a lot. Plus, there’s the possibility of the mold returning if it hasn’t been thoroughly removed. And even if you are able to get rid of the mold, you’ll most likely be left with an unsightly stain that can negatively impact your property value.
So, when considering whether a property would make a great investment, make sure to check for leaking pipes. The most common telltale sign would be water stains on the ceilings, floors, and even on the walls. If the property has a basement or an attic, make sure to thoroughly check for any signs of moisture or leaks as these areas are most prone to mold growth.
If you decide to purchase the property anyway and just hire a professional to get rid of the mold, make sure you have the pipes checked and fixed as well to prevent future recurrence of mold growth.
A lot of investors get great deals just by looking for fix-and-flips at real estate auctions. But there’s a downside to that: You don’t really get to see what’s inside the property. Sometimes, you literally get more than what you pay for; you get pests too. These creatures can be lurking within the property, especially if the place has been empty for a relatively long time.
So if you don’t want to find pests once you check the basement or the attic of the property you bought, I suggest you don’t invest in any property unless you have already had it thoroughly inspected.
Also, when inspecting a potential investment property for the first time, make sure to check for signs of infestation. It could be animal or insect waste, or it could be telltale noises such as squeaking, scurrying, and chewing. If you still decide to buy the property despite signs of infestation, make sure to block all holes and other potential entry points for these pests to prevent them from coming back.
Too Much Damage
When buying fix-and-flips (or foreclosed homes, to be exact) you need to keep your expectations realistic. It’s not going to be the same as buying straight from the homeowner. Keep in mind that most of the vacant houses on the market have been abandoned by unhappy homeowners, so it’s unlikely for these units to be in pristine condition.
Some of these homeowners would have probably taken some fixtures with them when they left, and some of them would have intentionally damaged the property before leaving. So it will take a lot of repair work before they can be habitable spaces again.
While you need to expect a measure of remodeling and repair work, you should also learn to identify when a property is too much of a trouble to rehabilitate. Pushing forward with the purchase despite the huge amount of work you’ll need to put in to fix the property can cause you to incur a loss rather than gain profit from the investment.
One of the most common signs of unapproved renovations to the property is when you find that its actual square footage is bigger than what has been indicated on the listing. That might seem like an advantage to you now, but you’ll find yourself in trouble with the home insurance company if your place gets damaged during a flood or fire.
So to prevent this worst-case scenario, make sure to double-check the permits for any renovations made to the property before buying it.
Other mistakes that new investors commonly make
Aside from the red flags we’ve discussed earlier, there are other mistakes that you should avoid as a new investor. Let me discuss five:
Mistake # 1: Not taking advantage of the opportunity
Ever heard of ‘analysis paralysis’? This is something very common among beginners, and this happens when they let the fear of the unknown paralyze them and get them to overthink things. They let their fears keep them stuck in inaction, which ultimately prevents them from taking advantage of the opportunity right in front of them.
But here’s what I’ll tell you. Most of the time, the fears we have in our minds are not as worse as they may be in reality. In fact, a lot of these fears never materialize. So instead of getting yourself all worked up by something that isn’t or might never even happen, start taking little steps toward your goals.
I’m not saying you should overcome your fears. You can never completely overcome your fear of the unknown. What I’m saying is that you should learn how to navigate through those fears. Dance with them. Acknowledge how you feel and then act in spite of that fear. Remember, the only way you could get to your ultimate destination is if you take that first step. Trust me, it will get easier for you as you go.
Mistake # 2: Getting too excited
No, it’s not bad to be excited about becoming a real estate investor. In fact, that adrenaline rush can help keep you on your feet as you learn the ins and outs of the industry. But getting TOO excited can turn out to be a bad thing for you. It could get you to jump right into this career without first learning how to ‘swim’.
Of course, you can’t just wait forever before starting, but you should never start real estate without a plan or a good strategy in place. If you dive right in without fully knowing what you’re getting yourself into, you could ultimately end up drowning in debt.
Don’t just place all your bets on what they call ‘beginner’s luck’ and hope for the best. Plan before you act.
Mistake # 3: Trusting everyone
These days anyone can call themselves an expert, but not everyone is. So before you trust that ‘real estate’ guru you found online, make sure to check their track record first. What do you know about him or her? Do they actually know what they’re talking about? Do they have a good strategy in place or are they simply pushing me to make an expensive purchase?
While it’s good to be eager to learn, you need to make sure that you’re learning from the right person. Otherwise, you might end up just wasting your time, or worse, spending your money on the wrong person! Plus, you might end up learning all the wrong things about real estate.
So again, make sure you know who you’re trusting your career with. And just to put you at ease, feel free to check me out at www.casanovabrooks.com to get to know more about me and my story.
Mistake # 4: Getting too emotional
Your emotions can cause you to act against your better judgment, so make sure to always keep them in check, especially if you’re in the process of deciding whether a property is worth investing in. Remember, you need to base your decisions on data, not on your gut feeling.
Buying a piece of property just because it feels right is not the same as buying it because it fits all your requirements. Investment decisions should be based on logic and facts—not on your emotions.
Mistake # 5: Not taking the time to learn the basics
You don’t need to learn everything before you can start on real estate investing. But you do need to have a good working knowledge of the basics. Now, most new investors buy their first property without even fully understanding the principles behind investing.
Sure, investing might look simple on the surface, but trust me, there’s a lot more to real estate investing than just acquiring a piece of property and finding a tenant for it. And most of those who rushed through the learning process often found themselves making very costly mistakes.
Again, I don’t want that to happen to you. So don’t invest in a property unless you have already invested in yourself. Take Warren Buffet’s word for it: “The more you learn, the more you’ll earn.”
So in the next chapter, I’ll walk you through one of my favorite investing strategies. Are you ready? Then click on the link below to proceed.