Real Estate Investing 101: The Top 10 Common Mistakes When Getting Started

Published by Dan O'Connor in Ask an Expert, 4 months 1 week 2 days 6 hours 51 minutes 41 seconds ago

Here's the short list of what way too many beginner investors make as they struggle to learn how to do deals. The list is actually much longer but if you're just getting started, focus on getting these top ten under control first.

In no particular order:

1. Winging it - almost every real estate course on available advises wannabe investors to fake it until you make it and just jump into action with no plan at all. That's a big mistake that could cost your livelihood, reputation and bank account in a hurry, depending on how big your screw up is. Take at least an hour or two and jot down what exactly you want to see happen (yes, I'm talking about setting realistic goals here) and how you plan to make it happen. Bottom line, plan your work and work your plan.

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2. Not building a team of professionals - if you're considering beginning in real estate investing, more power to you! But realize that you can't do it all alone. You're going to need to build a team of pros who can help you along the way so that you can spend the majority of your time focused on money making activities. After all, making big money is the reason why you're even considering beginning in real estate, right? Take your time and interview real estate attorneys, mortgage brokers, real estate agents, contractors, accountants (with real estate investor experience) and title companies so that when you're ready to pull the trigger, you can fire at will without having to think twice. 3. Paying too much for a deal - you're going to need to know what houses are worth in your own market. Forget about all of the doom and gloom that's currently dominating the media these days. There's no better time to begin investing in real estate than right now IF you know how to recognize a potentially high profit deal when you see one.

4. Setting up the wrong business entity or worse, doing deals in your own name - yeah, a lot of folks roll the dice when it comes to this topic but if you like to gamble, go to Las Vegas. Don't risk possibly losing everything you own because you were too proud or lazy to do a little research (it's not rocket science) to understand what corporate entity will work best for you and your investing goals.

5. Gunslinger in the wild west mentality - if you think that you can do whatever you want when you're face to face with homeowners in distress, you would better have a sit down meeting with yourself (as Tony Soprano would say) and seriously think it over. Sure, big money is waiting for you to find it as long as you follow the rules. You had better believe that your local authorities will not appreciate you trying to shade the truth or outright deceive homeowners in distress. Most states have some sort of consumer protection laws in effect to protect unknowing homeowners from unscrupulous investors. There's no need to be paranoid. Just be prepared.

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6. Not researching title correctly or not at all - can lead you into a hole that you can easily find yourself buried financially. Learning to search title is easy once you understand what you're looking for and where to find it quickly. You don't need to pay a title company every time you have a question about a property. With a little bit of knowledge and practice, you'll be able to know in minutes whether or not a deal is really worth doing or if it's just a money pit in disguise. 7. No cash reserves - It's all about the money so don't ever forget that. True, you don't necessarily need to use your own money but you will definitely need cash to make deals happen. Even if you only plan on flipping houses, you'll need cash reserves for certain contingencies that will come up.

8. Not working on your education - This should go without saying but many folks try to start investing in real estate after watching some 2 hour infomercial on late night TV. Sure, you don't need to go overboard and study without ever taking action on what you've learned but you also don't need to spend thousands of dollars before you have your first deal under your belt but you should be diligent and continue to study. Study but then take MASSIVE ACTION!

9. Getting the numbers wrong - This one is a double whammy because so many well meaning folks getting started in real estate investing misjudge either their purchase numbers (overpay) or their fix up/holding expenses. Either mistake can practically instantly kill the proverbial golden goose.

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10.Thinking that real estate investing is a way to get rich quick - Real estate investing is all about finding deals on a steady basis and keeping the deal pipeline filled at all times. Sure, as your skill level increases, you'll occasionally find a grand slam of a deal but it's important to focus your efforts on the more common singles and doubles (sorry for the baseball analogies) so that you will get rich slowly and steady. Don't think for a second that every deal you do will be a six figure money maker. There you have it. If you get started investing in real estate the right way and avoid these mistakes like the plague, you'll be way ahead of 95% of all the other folks who fall for all of the empty promises of riches without effort that so many infomercial dream merchants insist on peddling on TV and the internet.

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