11 Real Estate Investing Mistakes to Avoid as a New Investor

11 Real Estate Investing Mistakes to Avoid as a New Investor

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Adding commercial real estate to your investment portfolio can seem like a daunting endeavor, but here are eleven common mistakes that new investors tend to make. By making yourself informed before your first purchase, you can hopefully avoid some of these potential pitfalls.

 

  1. Deciding when to start investing. They say timing is everything, and that’s especially true of real estate investing. Do your homework on your local market and whether it’s trending up or down before jumping into the fray.
  2. Searching for properties in all the wrong places. Rather than haphazardly searching for commercial properties to buy, focus on a particular geographical location (typically one that you can visit in person) and get to know that area well. Then search through foreclosure, probate, short sale, or auction listings for properties in that area. Also, many hard money lenders restrict their lending to a specific region so investing locally can make it easier to obtain financing.
  3. Picking the wrong property. Not every discount property is a good deal. Conducting proper due diligence beforehand can save you a lot of grief down the road. Before selecting a property to buy, visit it in person to make sure that it doesn’t have risk factors or issues that will make it unprofitable: bad neighborhood, poorly located, zoning issues, etc.
  4. Miscalculating the costs. Be conservative in estimating both the potential income from the property and any rehabilitation costs. Your budget should account for potential problems as well. It’s far better to end up with more money than you needed than not enough. Also, it’s important to factor in the higher costs of hard money loans because they won’t work well for every deal.
  5. Trying to do everything on your own. When you’re starting out, it can be tempting to try and do everything yourself to avoid the costs of experts, but if you rely on experts now, you can learn things from them to take forward into new deals down the road. Finding yourself a business partner or mentor when you’re starting out can also be a good idea as it can make financing easier to obtain. And it’s always a good idea to utilize a real estate attorney on a commercial transaction in which title work and purchase contracts are oftentimes more complicated.
  6. Disregarding investment tools and resources. If your lender or realtor has any tools, resources, or advice to offer, take advantage of them. There is definitely a learning curve involved in real estate investing. Your hard money lender can be one of your most valuable resources as they typically have many years of experience in the local market and can often provide expert advice about investing in your area.
  7. Taking on more than you can handle. Unless you have an experienced partner working with you, tackling a big project as your first one can be a bad idea. Instead, start small and work your way up to larger deals.
  8. Employing a faulty strategy. Before buying your first property, you should outline your financial goals and choose a strategy that will help you rather than hamper you. Decide beforehand whether you want to rehab and resell properties, manage income-producing tenanted properties, or perhaps a bit of both.
  9. Letting your emotions dictate your decisions. Don’t buy a property just because you’ve invested a lot of time into researching it. Sometimes a deal you’ve spent lots of time on just doesn’t end up making sense from a profitability standpoint. If that’s the case, it’s best to cut your losses now rather than going through with it and regretting it later on.
  10. Expecting results too quickly. Commercial real estate investing is not a get-rich-quick scheme. Don’t get discouraged if your initial profits are small, just keep taking those profits forward into the next deal, and as your experience grows, so will your profits.
  11. Not considering hard money loans to fund your project. New investors don’t always know about hard money loans or they’ve heard that such loans are only for borrowers with bad credit and that the lenders are predatory. This couldn’t be further from the truth! Hard money loans are a crucial tool in any investor’s financing toolbox.

 

If you’re a new investor and you have questions about using hard money or private capital loans for your projects, contact Montegra at 303-377-4181.