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6 Avoidable Real Estate Investment Mistakes | Flagship Bank Minnesota

Written by Security Bank & Trust Co. | Nov 10, 2021 6:40:45 PM

"Everybody makes mistakes. Everybody has those days." No offense to Hannah Montana, but it's not every day and 'everybody' that could make a multi-thousand dollar, real estate investment mistake and chalk it up to one of 'those days.' I prefer the much more morbid and much less catchy philosophy from Warren Buffet, "It's good to learn from your mistakes [but] it's better to learn from other people's mistakes."

So that is what we are here to help you do. Below are the most common real estate investment mistakes and tips on how to avoid them when it comes to pursuing, financing, and maintaining your own real estate investments.

 

Being a 'Man Without a Plan'

Unfortunately for risk-takers and "wingin' it" savvy individuals, real estate investing requires more than a "fake it till you make it" attitude. Rushing into a home purchase, even if you are in the prime financial position to do so and want to jump on a deal, will create substantial problems and horror stories down the road. 

Create a real estate investment plan and find properties — single family, multi-family, short-term rental, etc. — that fit that plan. Don't get caught up in the frenzy of operating in a hot seller's market.

 

Lone Wolfing It

Say it with me, "You do not in fact know it all." Not only is it okay to ask for help, it is NECESSARY. From finding a great property at a reasonable price to financing that property at a good rate, no one person can do it all alone.

Your real estate investment arsenal should at the minimum include a trusted mortgage lender, home inspector, insurance representative, and real estate agent. They are there to alert of any flaws in the property or in the neighborhood. Your team of experts directly impacts your investment success or failure. 

 

Having Poor Study Habits

Surprisingly there is more that goes into real estate investing than signing the check on the dotted line. As we mentioned earlier, jumping into this passive income stream without learning all that it entails is a 'big no-no.' In the wise words of Sir Francis Bacon, "Knowledge itself is power".

Luckily for real estate investors in the 21st century, modern educational tools come in many mediums including podcasts, blogs, online and interactive guides, digital apps, downloadable checklists, and more.

 

Ignoring the Local Real Estate Market

It would make sense to investigate what your local real estate market — you know... the one you want to invest in... — looks like. Finding out what similar properties are valued at and keeping a pulse on supply and demand issues in the area helps investors maximize the return on their real estate investment.

The way to do this? Rental comps, baby.

 

Getting Emotionally Attached

It's human nature to get attached to something you have invested so much of your time, money, and self in. The heart wants what it wants and all, but don't listen to it when it comes to buying and selling a property. If you make decisions based on gut instinct alone, you may end up spending more than you need to.

Let the numbers rule real estate investment decisions, not your emotions.

 

Underestimating and Overpaying

According to DiversyFund's Co-Founder and Chief Investment Officer, Alan Lewis, “inexperienced investors tend to underestimate or entirely miss some of the costs involved with real estate investing and are overly optimistic on their numbers." Overbidding on a house and then overspending on renovations means adding years onto when you will break even on your investment, let alone make any profit. 

Let us reiterate to "let the numbers rule" and keep track of your cash flow. If you did your research *cough cough* rental comps, underestimating and overspending can be easily avoided.

 

While making mistakes is a part of life, let's leave the real estate investment mistakes to the people who didn't have the good sense to read this blog. Take a look at Flagship bank's full guide to real estate investing.