3 Rookie Mistakes All Fresh Real Estate Investors Make

Real estate investing is an ever-changing game. It’s personal; it’s political; it’s exciting.

Within the world of real estate investing, there are hundreds of different things to pay attention to, and with so much to keep track of, every investor is sure to make mistakes.

Even if you’re going to make mistakes along the way, there’s no reason you shouldn’t learn from the traps and snares other real estate investors fell into when they first got started.

As a newbie to the business, you have a chance to avoid these common errors and instead, jump right into making money instead of mistakes.

RELATED: The Real Estate Investor's Quick Start Action Guide

Mistake #1: Too Much Emotional Attachment

Why is this a mistake:

As a real estate investor, it is important that you have a passion for real estate, but it is also important to have a passion for maintaining your bottom line.

If you see a property that makes no financial sense but you fall in love with it, you may be tempted to make it one of your first investment projects. While that might be fulfilling for the soul, it won’t be fulfilling for your pocketbook!

Emotional attachment can cause you to follow your passion over reason, and this can get you into some serious trouble if you don’t figure out how to balance the two in the early stages of your career.

What can it cost you:

Investing in passion projects is important for keeping the spark you have for real estate alive, but you cannot do this when you don’t have the means or equity to make a financial flop property work out.

Spending hard earned equity on a property that is unlikely to make it back is not a wise move. Doing so can put you back months or even years in terms of your investment career, and you may never recover from it.

It’s okay to choose projects that make more sense to your heart than your mind at some points in your career, but doing so too early can cost you thousands of dollars depending on the scale of the property.

How to avoid it:

There is room for passion projects in real estate. In fact, relying on your gut instinct may help you excel in the field, but you can only do this when you have equity to backup such decisions.

Here’s what to do when you find yourself growing an emotional attachment to a property:

1. Figure out WHY you have this feeling.

Is it because this is actually a good investment opportunity? Or does it remind you of your childhood home? Answering this question will help you determine if there is hidden opportunity in this property or if you are simply being emotional.

2. Bookmark the property.

If this property doesn’t make good investing sense, there is a good chance it will remain on the market for a considerable amount of time. Keep tabs on the property and watch for price drops. In a few months or years, the timing might be better.

3. Look for investment partners.

If you really can’t get the property out of your mind, try to find another investor to go in on the project with you. With their help, the financial burden will not be entirely on you.

4. Wait it out.

You’re going to come across many properties that spur an emotional reaction in you throughout your career. Eventually, you may have the equity to take on low-profit passion projects. Wait it out, and the time to indulge these passions will come.

No matter how you choose to handle an emotional reaction to a property, remember that you are trying to create a sustainable future for your investment business.

Mistake #2: No Emergency Fund

Why is this a mistake:

Even with perfect planning, there is always the chance that something will go wrong on a project site. Weather issues, contractor delays, and materials shortages can all lead to a project costing more than projected.

If you don’t have any money set aside to cover these unexpected costs, the project will come to a standstill and cost you even more.

What can it cost you:

If you can’t cover mortgages, contractor bills, or other things on time, you’ll get slammed with late fees and maybe even court appearances. Additionally, it will cost you a lot of time and energy to deal with the delays when you can’t pay for quick fixes.

Not having any flexibility in your budget is a sure way to put your project into a metaphorical chokehold.

How to avoid it:

The only way to avoid not having enough backup money in case of emergency situations is to (you guessed it) have backup money! But this doesn’t necessarily mean you need to physically have the money in your bank account.

Instead, create some contingency plans on what you would do if you suddenly needed a few thousand dollars (or more) to keep your timeline:

1. Keep An Emergency Fund

Set up a bank account specifically for emergencies. Put some of your profits into this fund every time you make a sale. Eventually, this nest egg will be enough to protect your business even if a tragedy strikes one of your properties while working on it.

2. Know Your Loan Options

When emergencies arise, getting a loan can be a good way to come up with extra cash quickly, that you can then pay back once you complete the project.

Keep a list of potential lenders and what their interest rates are and update this list quarterly. Always know your options when it comes to loans, as these options may save you in the future.

3. Stay In Touch With Other Investors

There are many investors who only get involved on other people’s projects rather than starting their own. These co-investors are more interested in the financial gain and consulting than the actual project management.

You’re sure to meet some of these investors throughout your career. Keep a list of these contacts, and catch up with them quarterly to see how they’re doing.

If you find one of your projects in a financial pinch, they may be happy to join you to see the project to completion.

Mistake #3: Setting Unrealistic Time Frames

Why is this a mistake:

As a new real estate investor, you be able to foresee all the ways a project can be delayed. You might also not be aware of how much time estimates can change throughout the seasons.

Because of that, you are more likely to set up unrealistic time frames for your projects, which not only throws off your physical workload, but it can become very stressful when you start feeling like you are falling behind.

What can it cost you:

If you establish the wrong schedule, you won’t have enough money budgeted to pay monthly fees such as electric and contractor fees, mortgages, equipment rentals, and more. Depending on the scale of your project, this timeline problem could end up costing you a lot in terms of your budget.

Not to mention, if you have additional investors on the project, they may not be happy with you when the timeline for completion keeps getting moved back.

How to avoid it:

The main thing that will help you get better at setting up project timelines is experience. But experience is something you (as a new real estate investor) cannot simply walk into the store and buy.

Here are a few other ways to avoid having serious timeline issues that could affect your status or bottom line:

1. Talk to other local investors.

Local investors will know the market better than you. They will have a better idea of how long things take to close and process, which construction companies tend to delay their work, along with many other factors that may affect your projects.

By taking their experience into consideration, you can set more realistic timelines for your own projects.

2. Build flex time into your schedule.

If you know that the roofing should only take one week but may take up to two weeks because of weather, allow for that flex in your overall timeline. If anything, you’ll finish ahead of schedule rather than late!

Building flex time into your timeline is a great way to protect you from going over your predicted timeline. Just make sure that this flextime considers which contractors work can overlap and which must come one-after-another.

3. Hire help.

For certain parts of the process, hiring experienced helpers will ensure that you don’t go over. If you need to find a new renter for a property you’re renovating within three weeks of completion, using an experienced tenant screening service can help ensure that you reach your deadlines.

Just because you are an investors doesn’t mean you need to handle every single thing yourself. Hire help to make sure things get done efficiently and correctly.

Start Off With Experience

As a new real estate investor, the surest way for you to succeed quickly is to pay attention to the experiences that investors have had before you and learn from them.

Mistakes will happen throughout your career, but they don’t need to be the same mistakes that hundreds of other investors have made before you. Learn from their experiences and get a step above the rest!

Eric Worral has owned and managed rentals for over 9 years. Currently, he works in marketing at RentPrep.com, a tenant screening service for landlords and property managers. He is also the co-host of the “RentPrep for Landlords” podcast where he shares tips and insights on managing rental properties.

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