5 Critical Mistakes Most Beginning Real Estate Investors Make
By reading the title of this Blog you may think it’s only geared towards Real Estate investors. It’s not. Anyone looking to change their lives or start a business can learn from the mistakes I’ve made and mistakes I’ve seen other make as well.
It’s hard to believe I’ve been investing in Real Estate for close to a decade. Prior to Real Estate investing I was heavily involved in the stock markets, foreign exchange, futures and even bonds from time to time. Since my switch to Real Estate investing, my whole world has completely changed.
Some may say I’m lucky, or I happened to time the market right.
I disagree, luck comes with HARD work and you can’t TIME the market. It’s more advantageous to spend time IN the market.
I’ve always made it very clear throughout my journey in Real Estate I’ve made tons of mistakes. As tough as it is to admit, I still make some bad decisions but I always learn from them and it’s rare I lose money (sleep however is another story).
When you’ve been in the game for as long as I have, you forget to go back and teach the basics. The core fundamentals required to succeed in Real Estate investing and life.
Today I’m going to share the top 5 reasons why many people fail at Real Estate investing and call it quits forever. What I’m about to share isn’t rocket science but it’s incredibly important you abide by these rules.
If not, be prepared to suffer the consequences.
1. Wrong Mindset
Over the years, this is the one thing I’ve consistently talked about. Having the wrong mindset can make or break you in the world of Real Estate investing. So many people think brains and talent bring success or wealth, but it’s simply not true. It helps, but it goes much deeper.
Having the right mindset is powerful beyond measures. It’s the foundation to true happiness and the building blocks to success. Prior to 2008, my mindset was narrow and small. Today, I truly believe I have the ability to manifest whatever I want in my life. I’ve proven this to myself over the last 8 years.
Here’s the secret: change your car into your library and your T.V. into an education course. Some of my earlier teachers were Jim Rohn, Zig Ziglar, Napolean Hill and Brian Tracy. Prior to this, I was so distracted and felt I had no control of my life.
Since I’ve taken heed to their teachings my productivity and lifestyle has completely changed however, there is a cost and it’s important to have down time and rewards along your journey.
2. Analysis Paralysis
This is by far the BIGGEST issue I see many beginning investors face. It’s also called the fear of the unknown. I’ve sat and watched many investors come out month after month, year after year and never take action.
I believe it’s because they feel they need to come out to one more seminar just in case there’s something they may have missed or haven’t heard that will ensure their success.
Here’s the hard truth.
No one goes through the woods without a cut, bruise, scrape or bite and makes it out through the other side without a story to tell.
There comes a time when you have to take a leap of faith and here’s the best way I know how to do it:
Determine clearly what goals you desire to achieve (attract) by writing it down. Keeping it stored in your head doesn’t work. Putting pen to paper starts the attraction process.
Now here’s the secret formula most miss. Understanding that purpose is stronger than object. Read it again, and let it sink in.
For every home I’ve acquired, I’ve tied a purpose to it. The first home I bought was for my son’s education. The 2nd home was for my daughter’s education. See, when a strong purpose is tied to an object it’s impossible to stop you. If you truly believe in your purpose for acquiring what you want- it will happen.
Every moment is a moment of decision. Plan your day before you start your day. Your life will change and analysis paralysis will be a thing of the past.
3. Know Your Number
So many people get into Real Estate investing thinking they are going to become overnight Millionaires. Coming in with that mindset is called speculation and can lead to disaster. Especially when the market is strong, everyone wants to become an overnight success.
Here’s the problem, the market will turn and people will get caught holding the hot potato.
So how do you protect yourself from this? You have to know your numbers. One of the first things I was taught when I first got into Real Estate investing is “Cash Flow is KING!” To this day, every property I own is cash flow positive. This protects me from interest rate hikes which will also eventually come one day.
Before I even think about putting in an offer, I will run the numbers including Property Management fees, maintenance, vacancy and an interest rate higher than what the banks are offering to ensure the numbers work.
Understanding the numbers is such an important ingredient to your success. This is why we dedicate our beginning in-class workshop on understanding the numbers.
4. Understanding Leveraging
Once I understood the magic of leveraging, it changed my life forever. Real estate is one of the few investment vehicles you can buy for a fraction of the price. What could be better than to own and control an asset that will over time, appreciate, have mortgage pay down and generate cash flow.
Here are a couple ways to use leveraging in Real Estate;
If you own a home, using the equity to invest. This is one of the best ways to create wealth. Don’t get stuck in the mentality of having to pay your mortgage down and nothing else. Yes I believe in mortgage pay down but if you can borrow the equity at 3-4% and create returns of 20-30% in Real Estate, it’s called a game changer.
The other type of leveraging I see many investors use time and time again is using other people’s money (OPM). There will come a time when you run out of money, it happens to all investors. The only way to continue is to trade your experience for their money through Joint Ventures.
70% of the properties I own today are Joint Ventures. If I didn’t master the art of Joint Venture Partnership I would probably still be at my 9-5 job that was draining the life out of me.
Keep this in mind, if you use leveraging to your advantage it will make you wealthy however, if you over-leverage it could sink your ship. Always seek expert advice.
5. Having a Team
Real Estate investing is a team sport. Expand your association and get around people who have good ideas to share. Smart Home Choice, like other Real Estate Networking Groups offers one of the best ways – Mastermind Events.
Where can you find them? They are happening in your very own city on a weekly or monthly basis. You just have to search for them and attend.
The next important aspect to ensuring your success is having a good team around you. When I first started, I didn’t have a team and I failed miserably.
Once I started to build my team, things completely changed for me. Now I surround myself with the best accountants, lawyers, mortgage agents, insurance agents, appraisers and contractors in the area. My team is what allowed me to expand my business to a level I never thought possible.
Focus your time with people who share ideas and testimonials of not only their success but also their failures. Those who will guide you down the right path and inspire you to be better than the person you were yesterday.
Well, there you have it! Those are the 5 BIGGEST mistakes I see beginning investors make. These are the same 5 mistakes I made or didn’t understand in the beginning as well. If you can understand these mistakes to avoid and study each of these teachings your life can change forever.
Success isn’t only measured in wealth, it’s also measured in happiness. Find happiness first through mindset, then seek out wealth.
If you do it backwards all wealth does is make you more of what you already are.