How Beginning Investors Can Avoid Costly Mistakes
What new investors fail to realize is that relying on short-term appreciation in real estate is not the brightest of ideas. With the market so unpredictable in the short-term, investors should plan on either holding onto their real estate for at least 10-15 years or if you know how to time the market, buying and flipping often works too. The rental market is very unpredictable, so if you buy a property with hopes of renting it for a positive cash flow, you’d better get a very good deal. Just know that in the long run, if you have purchased the right real estate, it is almost always a good investment.
If you are thinking about forgoing the real estate education, please don’t. There is so much to be learned about investment techniques, financing, negotiation and acquisition; and the more you learn the higher your chances of success. Investing in a solid real estate investment education is one of the best things you can do to minimize your risks.
Yes, it takes money to make money. In real estate, one of the worst things you can do is have an insufficient cash reserve. The trick of the trade is this; you have to be able to sustain yourself through times of negative cash flow, as well as unforeseeable repair and maintenance problems. Not being able to handle negative cash flow is the problem that will smash a new investors real estate dreams. Purchasing no money down properties is the easy part, maintaining them is not so easy if you have no back up cash. Moreover, being hard up for cash will put you in the predicament where you are willing to settle in situations where you shouldn’t, such as accepting just any tenant or making substandard repairs just to get by.
Real estate is one of the few businesses that deal with large sums of money. The problem is that a simple greedy mentality is an easy pitfall for new investors to fall into. One of the most common problems new investors make is expecting too large a profit, especially when it comes to flipping properties to other investors. No, you cannot buy a rehab property and split the profit 50/50, it doesn’t work that way. You find the deal, take a small cut and move on.
Lastly, contrary to popular belief, getting rich quick in real estate is a 5-10 year process for most people, not 6-12 months. Don’t expect to quit your job in three to six months or when you fall short you will be tempted to quit. If you do happen to be one of those lucky investors, the success will just be sweeter.
