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4 Big Mistakes Real Estate Investors Should Avoid

Real estate investing mistakes can be costly on so many levels. They can wipe out your potential profit and, if you make one big mistake, it can wipe you out financially and emotionally.

real estate investing mistakes

We all make mistakes. Just keep them small and learn from them.

We all make mistakes. The trick is to keep your mistakes small and to learn from them. It’s even better if you can learn from the mistakes of others.

Here are the top four lethal mistakes that can cut your real estate investing career very short. Avoid these pitfalls, proceed cautiously, and you can become a super-successful real estate investor.

Mistake #1: Failing To Educate Yourself First

Not having enough knowledge before jumping into the real estate game is the top problem for beginners. Investing in real estate is exciting, beginners get impatient, and it’s tempting to leap right in.

Don’t do it.

Take the time and make the effort to learn about real estate investing from the pro’s. Educating yourself about real estate investment options and successful methods is the only proven way to succeed and achieve long-term financial security.

Don’t make the mistake of learning just one strategy and using it for every deal. For example, lots of beginners decide they just want to do lease options. A lease option is fine IF that’s the best way to put the deal together. If it’s not, it’s like trying to put a square peg into a round hole.

Once you find a motivated seller, there will be several different ways to put the deal together and some ways that won’t work. So you need a lot of tools for your investor toolkit.

Fortunately, we provide you with tons of free educational information right here on this site. Check out our Real Estate Investing Resources page to get started. Then be sure to visit our real estate discussion forums where you can get answers to your questions and minimize mistakes through expert advice.

Mistake #2: Looking For Houses or Properties Instead of “Situations”

“I drove by 100 houses this month and didn’t get one deal!”

“I looked at 30 houses this week and didn’t get one offer accepted.”

“you should be looking for situations that cause sellers to become motivated”

Sound familiar? I really hope not because, if you’re still looking for houses or properties, you’re looking in the wrong direction.

This is another big mistake beginning investors make. They waste time driving by houses, looking up comps, and talking to sellers who are not really motivated to sell. Totally unproductive.

Instead, you should be looking for “situations” that cause sellers to become motivated to sell. Some obvious examples are pre-foreclosure, job transfer, divorce.

Eviction actions (Unlawful Detainer) can uncover the classic “tired landlord” who, after enough bad tenants, becomes very motivated.

So before you drive by another property, you should first find out WHY they are selling and whether they really NEED to sell.

Mistake #3: Not Having an Exit Strategy *Before* You Buy

When investing in real estate, you make your profit when you BUY. That’s when you build your profit into the deal. So before you even make an offer on the property, you must first decide what you will do with it when you own it.

When you know what you will do with the property, it will help you determine the offer you should make, whether you will need financing, and what type of financing you should use.

“before you even make an offer on the property, you must first decide what you will do with it”

As my friend Cam Dunlap says, “Your exit strategy drives your offer.” To see what he means and for an analysis of various exit strategies, check out his article, What’s Your Exit Strategy?

Mistake #4: Not Having a Plan and a Back-up Plan

Real estate investing is like any other business: You need a plan.

Instead of wandering around looking for deals, plan it out. How will you find your deals? Where will you get your leads? How many phone calls will you make each week? How many offers will you make per week? How much will you spend on advertising each month?

You need to treat investing like any other business. Give it time, effort, and attention and it will flourish before you know it.

You also need a back-up plan for your deal. The poet Robert Burns said it best: The best-laid plans of mice and men often go awry. No matter how well you plan, always expect the unexpected and have a back-up plan.

And that takes us back to Mistake #1. If you have educated yourself adequately, you’ll be able to construct a variety of scenarios that will allow you to close your deal, even if your original plan won’t work.

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What mistakes would you add to this list?

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About the Author...

J. P. Vaughan founded Creative Real Estate Online in 1995. She wrote the book "How to Buy Your Dream House for 1/2 Price" (Quantum Publications 1994, out of print). J.P. was also an attorney who practiced law in Michigan until she started investing in real estate full time in 1988.

J.P. passed away in October 2015 after a long battle with ovarian cancer.

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Comments

  1. J.P.,

    I have got to spend more time on CREO! I know these things but it is still great to hear it or read it again and again!

    We all get a little anxious sometimes and forget these basic critical 4 things. Instead of calling these mistakes we need to make sure we:

    1-Get educated
    2-Look for situations not houses
    3-Have an Exit Strategy
    4- Have a back up plan to your back up plan

    So easy to do and then you don’t have Mistakes that cost your bank account and your sanity!! I have done the mistakes more than I care to admit and still have a tendency to be too optimistic and in this market my positive attitude bites me on the backside from time to time. But keeping your 4 points in mind would truly prevent some of my headaches anyway 🙂

    Great points!

    Thanks again!

  2. J.P. Vaughan says:

    Hi Ron,

    Glad you enjoyed the article! Yes, do spend more time here because we have lots of good things coming in 2012…

    JP

  3. These four mistakes are an excellent template to use. Number 1 is the foundation. Especially in understanding contracts and how to prepare them. It is there that no. 3 and 4 can be covered using contingencies and assignment.
    Number 2 is a golden rule. Without seller motivation you make more buying lottery tickets.
    An excellent training tool for new investors like myself. I will use them to maintain the mindset.

    Thanks CRE Online

  4. John Corey says:

    A great article.

    Number 2 is critical to me. I find that many times investors ask for advice about how to find a deal and I tell them to find a person who is motivated. Houses do not talk to you. They do not decide what they are worth. People do. You have to find situations.

    Very well said and thanks for sharing.

    • J.P. Vaughan says:

      Thanks, John. I consider this a big compliment from a seasoned pro. Yes, I think #2 is perhaps the most important mistake to avoid because, if you get stuck there, you just won’t get anywhere in the real estate biz.

      JP

  5. As a beginner in the real estate world, I admit to having made some of the mistakes listed above. One critical mistake I would add to the list is not to waste time with notes or property that won’t sell!!! Don’t put contract on a house if you can’t sell it. Likewise, don’t send quote requests to note buyers on paper that is worthless.

  6. Jan Campbell says:

    would foreclosures be considered owner situations?

  7. Owner Finance OKC says:

    Another great read thanks very much!

  8. OK Cash Home Buyers says:

    Wow!!! Insightful…, Thanks, Great read!

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