Amateur Mistakes in Real Estate Investing
It is common in any industry for novices to make mistakes, mostly due to lack of experience. It is no different in our industry – there are a number of common rookie mistakes in real estate investing that is constantly repeated by novices. If you’re a fledgeling investor or a veteran one who is not so sure, you need to do a double-check and see if you are committing any of the following:
Having an Unhealthy Emotional Attachment to a Property
The most successful investors tend to be very passionate about their work. This passion tends to actually improve their chancess of success. Where it turns into an example of amateur mistakes in real estate investing is when they become so passionate that they develop an emotional attachment.
It helps to keep in mind that investing may benefit from creativity, but it is a business first and foremost. If a property makes no financial sense, you shouldn’t prioritize it no matter how beautiful or relatable you find it. Prioritize reason and logic over passion and emotions when it comes to investing. When you’re successful enough that you can weather a loss here and there, then you can think of following your heart even if it’s bad for the pocket book.
Besides, it is not always an either/or situation. You can always find properties that you are passionate about, but still make enough sense for your pocketbooks.
Here are some tips on how to prevent developing an unhealthy emotional attachment to a property:
- Find out why you are passionate about the property. The more you understand where a feeling is coming from, the easier it is to fight.
- Keep tabs on the property. If the property isn’t financially viable, there is a big chance that other investors won’t invest in it either. So it is likely to drop down in price later on. When that time comes, you can buy it and keep it as a pet project, as opposed to an addition to your portfolio.
- Find investment partners. If you really can’t resist investing on a property regardless of its cost, then try to find someone who will can split the cost with you, which negates the financial burden.
- Being Unable to Set Realistic Time Frames
Trying to meet an unrealistic deadline can be a project killer, but even worse is the fact that these unrealistic deadlines are usually self-imposed. Amateurs sometimes get so excited and aggressive that they try to get everything finished as soon as possible, without even considering any issues that normally arise from within and with third parties. Of course, the fact that novices lack the experience yet means that they are usually unable to judge whether a timeframe is realistic or not, making this one of the difficult-to-avoid mistakes in real estate investing.
Avoiding Time Frame Mistakes in Real Estate Investing
To help novices set more realistic deadlines for their projects, there are a few things that they need to be done beforehand:
- Talk to local investors – some of them can serve as mentors while others, just colleagues. But it’s all the same, they will provide much-needed first-hand knowledge on realistic time frames in the industry.
- Overshoot your deadline – even if you know that paving the driveway will only take a couple of days, try to consider the amount of time it will take if you encoutner problems. In a worst case scenario, you’ll still meet your deadline but if things go smoothly, you’ll finished way ahead of schedule.
- Hire Help – in a lot of cases, amateur mistakes in real estate investing occur because an investor is trying to save on manpower costs. This is a bad idea. We’re not saying that you should just hire as many people as you want even if you don’t need them, what we are saying is to avoid reducing manpower beyond the amount you need just to save a few hundred dollars or so.
Costly Mistakes in Real Estate Investing: Lack of Emergency Fund
Even if you have a meticulously planned project, you still won’t have a 100% success rate. Weather issues, delays on the side of third party contractors, or unintended shortages on material supplies can still lead to your project going overbudget. If you do not have an emergency fund set aside to cover these problems, projects could cost more due to delays or could even get cancelled with no way to recoup sunk costs.
The reason why this is such an amateur mistake is because it is very, very easy to prevent. The very costly mistake of not having an emergency fund is easily solved by, guess what, starting an emergency fund! This is something that you really need to start as early as possible. As soon as you have enough extra revenue, put it on your emergency fund.
Additionally, you might want to check if you have any loan options. Being able to get a loan is a good way of supplementing your emergency fund, should it prove to be inadequate for an emergency.