• by The VRET Team

Real Estate Investing For Beginners: 13 Common Mistakes to Avoid at All Costs

What if you ended up destroying your biggest investment with the press of a button?

For many investors, real estate is a great way to grow their wealth more from year to year. Unfortunately, it’s all too easy to make common mistakes that jeopardize your investments, especially if you’re new at all this.

So, are you exploring real estate investing for beginners and want to get started on the right foot? Keep reading to discover the most common investment mistakes that you must avoid to be successful.

1. Not Having A Plan

If you’re just getting into real estate investing for beginners, there are many potential mistakes you might make. But out of all the potential real estate investing mistakes you might make, not having a plan is perhaps the most common.

For example, are you hoping to buy and “flip” a house? Are you buying while the prices are low in hopes of making a major profit in a year or so? Or maybe you want to rent the home to tenants in order to generate a steady flow of passive income?

The plans you develop will help you decide on the best home(s) to invest in. But if you invest without a real plan, it can be a real headache to simply turn a profit on your new investment.

2. Trusting the Wrong People

Here’s a little-known secret about real estate investing: once you tell people what you are doing, you will begin to get advice from just about everyone. Unfortunately, few (if any) of these people will actually know anything about this type of investment.

For example, there are countless sources online that claim to have important secrets about investment. But the simple truth is that they don’t know your local market and cannot offer relevant advice.

Conversely, you may have local investors that claim to offer good advice. But some of them may be hoping to become part of your investment strategy and effectively cut your profits in half.

Long story short? Make sure you are trusting local real estate experts who have only your best interests at heart!

3. Not Doing Your Research

The basics of real estate investment may not sound that difficult. After all, it’s a matter of buying at a low price and selling at a high price. How difficult could this really be?

The honest answer is “very difficult” if you don’t know enough about the market. And that will certainly be the case if you haven’t done your research ahead of time!

Some of our later real estate investment tips will dive into the kinds of things you need to research. For now, though, just be aware that any good real estate investment opportunity will take many sleepless hours of research before you can start to make a profit.

4. Going At It Alone

For beginners, real estate investment can feel like a bit of a paradox. That’s because it’s very easy to make a mistake and trust the wrong people, as we outlined above.

At the same time, trying to do everything on your own is one of the biggest mistakes you can make.

It’s important to build a network of people you can trust, even if that just means having people you can bounce questions off of. Such a network may include friends, family, colleagues, and real estate professionals. Basically, anyone who can offer tidbits of insight can make your investment decisions much, much easier!

Don’t try to go it alone. Instead, begin your investment career by finding real estate professionals with a proven track record of success.

5. Not Focusing On the Local Market

There are many reasons you shouldn’t trust every so-called “guru” of real estate investing online. But the main reason is that these gurus typically cannot provide the local market information you need.

Beginning investors sometimes forget the simple fact that real estate is an extremely localized form of investment. Someone who lives on the other side of the country will not have much insight into your local real estate. In point of fact, home values and prices may fluctuate greatly from neighborhood to neighborhood in even the smallest towns.

Before you make an investment, you need to know what similar homes have sold for, if homes in the area have been selling and renting regularly, and so on. By understanding both the demand for houses and the relative price of each one, you can get the most out of your investment dollars.

6. Operating On Emotions

Did you know the worst advice for beginning investors is only three words long? And this is the advice: “trust your instincts.”

Many successful investors like to look back and say they always trusted their instincts. But the blunt truth is that they got lucky. And for every one investor that gets lucky like that, there are 10 other investors who lose their shirts.

You should never get emotional about investing, but it happens more commonly in real estate because you can easily fall in love with a home. But hard data about house values, market trajectory, rental projections, and other key analytics needs to be your guide if you want to make it in the world of real estate.

7. Not Diversifying Investments

Not all who are new to real estate are new to investing. And like any other kind of investment, one of the easiest mistakes to avoid with real estate is failing to diversify your investments.

For most real estate investors, the goal is to buy many different properties as a way of generating reliable profits. However, you might be shocked at the number of investors who buy only one type of property, stick to only one neighborhood, and have only one investment strategy.

The whole point of diversifying your investments is to protect your assets. And a failure to properly diversify can put many of those assets at extreme risk.

8. Ignoring Repair and Maintenance Needs

As we said before, some investors like to buy and quickly flip a property. However, the majority of investors wish to rent their properties to tenants as a way of generating passive income. But if you plan to do this, it’s very important to factor in the repair and maintenance costs for your properties.

For example, it is extremely common that you will need to make certain repairs or renovations right after buying a property. Basically, anything you overlooked before making the purchase is going to cost additional money.

And even if the property is in perfect condition, that won’t last forever. Your tenants will eventually need things repaired around the house, and it is your responsibility to take care of these repairs.

However, as long as you know you may need to make renovations, you can budget for that eventuality before buying a home. And as for repairs for your tenants, the trick is to set your rental prices high enough that you can effectively factor in repairs, maintenance, and other upkeep costs.

9. Not Thinking About Your Tenants

Speaking of tenants, you need to think about the needs of your tenants long before you buy a home. And that is because the needs of your tenants may play a major role in the properties you choose to invest in.

For example, let’s say that your research reveals that your likeliest tenants are going to be young parents. Such tenants are going to care about how close the nearest schools are and the relative safety of the neighborhood.

But what if you’re investing in a college town and your likeliest tenants will be young university students? In that case, they will care about things like the proximity of the university, nearby public transit options, and opportunities to enjoy the nightlife.

Once you know who your tenants are likely to be and what their priorities are, you can purchase properties in the areas they’ll want to live. Needless to say, this improves your odds of renting out that property each year!

10. Spending Too Much On Renovations

Earlier, we touched on the fact that you will most likely need to spend money on renovations after purchasing a home. And it’s a real rookie mistake to avoid budgeting for that. However, it is just as much of a mistake to spend too much money on your renovations!

Sometimes, overspending on renovations comes as a result of the investor falling in love with the property. Instead of being an easy opportunity to make money, the property now becomes the center of countless renovations so the owner can get everything “just right.”

Most of the time, though, overspending on renovations comes as a result of not having a firm renovations budget and plan of action in place. As usual, a little extra planning now can save you many thousands of dollars in the future.

11. Chasing Deals

Believe it or not, many beginner real estate investment mistakes come from the investor having the wrong mindset. That is because they end up approaching real estate like a homeowner would rather than as an investor should.

For example, someone trying to buy their own home is going to obsess over finding deals or bargains on property. This is because the right deal can make a difference (and maybe a major difference) in how much your monthly mortgage payment is.

But whether you plan to quickly flip a home or rent it to tenants, the bottom line is that if all goes well, you don’t have to worry about the monthly payment that much. Either you sell the home so someone else can worry about it or you rent the home to tenants who are effectively making the mortgage payments for you.

What does all this mean for you? Basically, don’t overlook a great house in a wonderful neighborhood because you can get a slightly better deal on a worse house in a worse neighborhood. Simply concentrate on getting fair deals on the kinds of homes that are likely to rent or sell.

12. Not Understanding Local Laws and Regulations

By now, you’ve probably figured out that renovations are a tricky business. If you’re not careful, renovations can become an annoying money pit. At the same time, a few key renovations can dramatically improve the curb appeal and overall value of a home.

For instance, adding a deck may add some real appeal to families who want to grill out during the summer. And converting a single-family home into a multi-family home means that your property will be more attractive to more potential tenants.

Here’s the thing, though: local laws and regulations may forbid you from certain renovations. And other renovations may require that you get a permit well ahead of time. Unless you want to add many annoying fines and fees to your budget, it’s important that you understand the local laws and regulations before you get started.

13. Getting Bad Financing

Previously, we mentioned that you don’t need to chase down every single deal and bargain because the mortgage rate doesn’t matter as much when you plan to sell or rent out the property. But it is still important for you to get good financing for any properties you wish to invest in.

For example, an adjustable-rate mortgage is usually a bad idea because the eventual increases in interest may force you to raise rental prices for tenants when you don’t wish to do so. You may end up in a similarly negative position if you get an interest-only loan.

Our recommendation is to get a 15-year fixed-rate mortgage from a reliable lender. The quicker you pay the mortgage off, the quicker your home generates almost pure profit from tenants. As your real estate profits go, you may be able to pay for future properties entirely in cash or reduce the monthly mortgage by making a sizeable downpayment up front. 

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Real Estate Investing For Beginners: Your Next Move

If you’re interested in real estate investing for beginners, you now know the common mistakes to avoid. But do you know who can help you invest in the hottest properties today?

Here at The Virtual Real Estate Team, we are here to help you achieve the financial security you’ve been dreaming of. To see how we can help make those dreams a reality, contact us today!