5 Traps Newbie Investors Should Never Fall For

Jun
7
2017
5 Traps Newbie Investors Should Never Fall For

Every veteran investor has a first deal. Regardless of experience or contacts all investors start out at the same place looking to close their initial deal. Once they get a few deals under their belt they take their business on whatever path they choose. Getting to this point is often the most difficult part for any new investor. Like any other business the first few months are filled with many sleepless nights and apprehension. You want to close as many deals as quickly as possible. While this is certainly a worthwhile goal you don’t want to take any action that will cause you to reverse course. A few missteps early on can cause you to take a step backwards instead of making small strides forward. There are many landmines and traps you need to avoid in your first year in the business. Here are five newbie traps you need to avoid.

  • Pursuing Every Deal. Finding the perfect real estate deal is difficult. In fact, one could argue that it doesn’t exist. Even on strong deals there is always something that can give you pause. One of the most common mistakes investors old and new make is pursuing every deal. There is a fine line between looking at new deals that come your way and knowing when to walk away. It is a good idea to come up with a checklist or system to help figure out which properties to pursue and which to away from. In that list, you need to have a couple of items that are complete deal breakers. This could be a specific location or the number of bedrooms. It can be difficult walking away from a deal when you don’t have much in your pipeline. However, it is always better taking small steps forward than scrambling to get out of a deal you aren’t fully committed to. Additionally, you may miss out on other opportunities that are more in line with your goals. Pick and choose your battles and don’t pursue every deal.
  • Getting In Over Your Head. Getting involved in a bad deal is difficult to get out of. If you don’t have a defined exit strategy when buying you need to reconsider the property. As we mentioned when desperation for a deal leads to situations you are not comfortable with. You may not normally consider a condo or a mobile home but since you are desperate for a new deal you take a look. Before you know it you are making an offer just for offers sake. Now you want the property without really knowing why. You are excited to take ownership but don’t have much of an idea what you are going to do with the property. You will spend the next few weeks, or months, figuring out a way to get out of the deal without too much damage. If you are lucky you can sell for a minimal profit but if not you will be forced to consider everything from renting to selling to break even. Getting in over your head is a cycle that is difficult to get out of.
  • Taking On Multiple Tasks At Once. Multitasking is not for everyone. While trying to take on three different projects at once may seem like a good idea it can actually backfire. It takes years of experience to juggle everything that comes at you in real estate. If you do not know what you are doing you will drop the ball on something that can cause much bigger problems. There is nothing wrong with focusing on just one task all the way to completion. Not only will you be more efficient but you avoid distractions that interfere with your day. Until you know what to do and when to do it you should slow done and do one thing at a time. Eventually you will get to the point where you can do four things at once but until you get there focus on one task at a time.
  • Bending Numbers. Everything in real estate revolves around numbers. Not only do numbers impact your business but they are the force behind every potential transaction. It is critical that you look at the numbers with an unbiased eye. If they tell you to walk away you should do so without much of a fight. The worst thing you can do is bend some of the numbers here and fudge some of the numbers there. It is easy to make any deal look strong with some fuzzy math. However, the numbers will eventually catch up with you when you take ownership and try to make a profit. You will be forced to either cut corners or alter your numbers down the road. It takes a good amount of discipline to walk away if the numbers don’t make sense but it is an essential step in being a good real estate investor.
  • Acting On Pressure. Never let anyone force you to act until you are comfortable. There are times when time is truly of the essence and you need to make quick decisions. However, you are usually given enough notice to perform due diligence. If a real estate agent, attorney, mortgage broker or seller is demanding an answer on short notice you need to take a step back. If something pops up unexpected down the road you are on the hook for it, not the people around you. Never be pressured into acting until you are totally ready.

All it takes is a few deals to build confidence and gain experience. Every phone call or offer you make will help expedite the learning curve. Until you get to that point avoid these five newbie traps.

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