One of the greatest things about real estate investing is that it’s one of the fastest ways to build wealth. Maybe you’ve never thought about investing in real estate, or maybe you already have some properties of your own. Whatever the case may be, there are some big real estate mistakes every investor must avoid.
Today, I’m going to share about the first four mistakes. Here is Part 2.
The First Four Big Real Estate Mistakes
1. Not getting started now.
This is the first big mistake. In order to learn about the business, you have to get in the game. In other words, just get started. By getting started – and even by making mistakes – you will find that you gain knowledge and understanding. All of the knowledge and understanding leads to wisdom.
In fact, there are some aspects of real estate that are difficult to truly understand until you jump in. So, the sooner you get started the sooner you’re going to gain knowledge that you didn’t have before.
Another benefit to starting in real estate is the appreciation of assets. The quicker you start acquiring real estate, the quicker your wealth begins to grow. If you don’t have your first home (your personal home), that’s a great place to start. The appreciation of that home plus other future properties will allow you to build wealth quickly.
Similarly, getting started increases your income. You can get cash flow from real estate that you can put in your pocket. And it’s tax-favored cash flow. That’s a win-win in my book.
2. Not focusing your energy on what will make you money.
One way I see this happen regularly is when investors don’t look at enough properties. The only way you find really good deals is by looking at tons of properties. Look at fifty properties. Then, narrow it down to three. Finally, make an offer on one or two.
Maybe you’re wondering how you’re supposed to narrow down from fifty houses to one. Great question! Look at properties that will get a good return from rent. For example, I like to see a single-family house cash flow $300 a month after principle, interest, taxes and insurance.
Spend your time on looking at properties. But focus your energy on crunching numbers so that your property will produce income.
Another place of focus your energy is learning to write contracts. Learn to write contracts and then actually write contracts.
In order to focus your energy on what will make you money, you need to know what you’re doing when you look at properties. So, look at more properties than you think you should, crunch the numbers, and learn to write contracts.
3. Not getting a professional opinion on everything.
For example, consider property values. If you’re in a brand new area and don’t know about the average property value, you’ll want to bring in some professionals to make sure you fully understand property value. Consider getting a second opinion to confirm the first opinion. And then, sometimes you’ll want a third opinion. Another example is repairs. Sometimes you need to have a contractor that will get you a second opinion.
The three most important words in real estate are not location, location, location. The three most important words in real estate are Verify, Verify, Verify.
If you learn to verify the information you’re getting, it will keep you out of trouble. In fact, I recommend you have a great property inspector who you trust to give you good information. Sometimes on more difficult properties, I’ll pay for two inspections because I want to verify, verify, verify.
4. Bypassing low to moderate income neighborhoods.
You especially want to focus on the moderate. But if the moderate housing is not giving you a positive cash flow of at least $300 a month, then you want to start looking a little bit lower. Also, make sure you understand the situation of the seller and the condition of the property in order to get the best deal on the property.
The next reason to not bypass is that your appreciation is pretty good. Basically, this means that the housing cost in that area will go up. Each step you go – low to moderate to expensive – means the greater percentage of appreciation you’ll get. Moderate income neighborhoods typically appreciate really well as long as the real estate market, in general, is moving.
Another bonus is that the property can be easily flipped to other investors. If you’ve established good cash flow, then investors are going to buy that cash flow – especially in moderate neighborhoods.
Finally, remember this key: the lower you go in income in neighborhoods, the more management is required. You may not mind having more management responsibilities, but keep this in mind.
These are four of many real estate mistakes you can make. Don’t let the possibility of making these mistakes keep you from getting your business up off the ground though. Remember, it’s better to start sooner than later! As you learn, you’ll understand more about the ins and outs of real estate investing, and you’ll avoid many future mistakes.
Just chant this to yourself if you’re feeling nervous about making mistakes: mistakes are not failures; they are opportunities.
Join us on Thursday for Part 2 of Big Real Estate Mistakes!
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