Real Estate Investing - 8 Common Mistakes to Avoid

By Kevin Cole

Every new investor dreams of starting a real estate investment company, making lots of money and living the “good life.” What most fail to realize is that if you do not know what you are doing, investing in real estate can be extremely complicated and costly. If you take it slow and learn to do it right, investing in real estate can be very profitable. In this article, I will explain 8 common mistakes a new investor usually commits and how you how to avoid them.

Mistake #1 - Failure to Invest in Education

Before you start spending your money, you need to take time and learn the basics of real estate investing. This doesn’t necessarily mean you need to spend thousands of dollars on seminars, or “guru” related courses; it simply means you should spend time researching the different investment strategies to understand what you need to do to be successful. You can get a good understanding of real estate investing basics by reading several books or visiting a few good REI websites and reviewing some of the free articles. Remember, the more information you learn, the more money you will earn.

Mistake #2 - Failure to Start a Business

Many people start out investing on a small scale using their own name, cash and credit. What they don’t realize is that any mistake can cost you everything you worked so hard to build. Before you start investing, do your research and create a business entity that best fits your needs. In most cases, an LLC or a Corporation will be the most appropriate entity to use for your business. By creating a business entity, you will be protecting your personal assets if something goes wrong down the road.

Mistake #3 - Failure to Obtain Insurance

Insurance is something that most people will never need, but for those who do, it is money worth spending. Almost all Fire Policies (Homeowners Insurance) contain one or more exclusions relating to “Business Pursuits of an Insured” which means you may not be covered if a loss occurs. Depending on what type of property you own and what you intend to do with that property will determine what type of insurance you will need. If you plan to purchase a single family home for a rental, you will need to obtain a Landlord Policy. If you intend to buy and sell “Flip” properties, a Commercial General Liability Policy might be the way to go as many will cover contract liability. As a best practice, make sure you speak to a knowledgeable Insurance Agent when deciding what type of insurance you will need.

Mistake #4 - Failure to Strategize & Plan

Real Estate Investing is like any other business, so why would you fail to treat it like one? If you want to be successful, you need to develop a clear plan of action on how you are going to succeed. Before you start investing, decide what strategy(s) works best for you. Don’t worry if it takes you some time to determine the right strategy, but when you do figure it out, make sure you stick with it.

Mistake #5 - Failure to Create and Maintain a Budget

One of the first things you will need to do is figure out how much money you have to spend. Don’t try to buy an apartment complex if you only have enough money for a condo. Once you figure out how much money you have to spend, focus your time and energy in developing a plan that fits your needs. If you over budget, you might limit yourself on your growth potential. If you under budget, you most likely will get yourself into trouble, which will result in a large amount of debt.

Mistake #6 - Failure to Correctly Estimate the Cost of Repairs

So many people buy houses thinking a new coat of paint, some carpet and tile is all they need to flip their new house for a profit. This mistake will not only cost you time, but it can cost you the entire deal. When you are looking to purchase a property, invest in a local contractor to review the property to provide you with a list of repairs that will be needed and the cost to complete each repair. This step will save you time and thousands of dollars on the back end.

Mistake #7 - Failure to Create a Team

Everyone has heard the saying, “You’re only as good as the weakest link.” If you plan to invest in real estate and you do not have a strong team around you, YOU will be the weakest link. It is very important to surround yourself with a strong team of individuals and continue to maintain a great working relationship with these people. Your team should consist of the following individuals: a Real Estate Agent, a Mortgage Broker/Lender, a Hard Money Lender, an Insurance Agent, an Appraiser, an Inspector, a Contractor, a Title Company or a Closing Attorney. It will take a lot of time and effort to develop your team, but when you’re finished, your success with show.

Mistake #8 - Failure to Take Action

After you educate yourself, start a business, obtain insurance, identify a strategy or plan, create a budget and create your team, there is nothing left but to put it all to work and take action. It might be scary at first, you might make little mistakes; however, if you don’t take action, you will never make money and be successful.

Investing in real estate can be difficult and if you go at it wrong, it can be extremely costly. On the other hand, investing in real estate can be very rewarding, professionally and economically. Don’t be afraid to seek help with a professional. In fact, most of these mistakes can be avoided if you know what you are doing. The more information and research you acquire, the fewer mistakes you will make.

Kevin Cole is a Real Estate Investor in California and is a Partner of BC Property Acquisitions, LLC, a premier Real Estate Acquisition & Investment Company specializing in the buying, renting and selling of Residential and Commercial Properties. You can reach Kevin at http://www.BCPROP.com

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