Real estate investing takes many forms and can sometimes be confusing to a new investor. Fortunately, this type of wealth-building is probably easier to understand than most other forms of investing, which include securities, precious metals, and complicated niche assets.
For the new investor who typically focuses on financing real estate and engaging in various activities like flipping real estate, selling real estate, buying real estate, and flipping homes, there are some key things to remember.
Overcoming early failures or small setbacks in the real estate realm can be achieved if you have a plan in place. Here are what experts have to say about dealing with some of the most common pitfalls in the world of real estate investing, especially for those who are new to the market:
Don’t let the paperwork get you down.
Perhaps more than any other business except for tax preparation services, the real estate business is heavy with forms, special documents, release forms, powers of attorney statements, notarizations, loan applications, and dozens of other types of documentation. Some new investors are overwhelmed when they make their first deal, whether it’s a sale, purchase, rehab or a flip.
If you go into the real estate investing market knowing that the paperwork can sometimes be a sour note, you’ll be ready for one of the several common factors that can be a bit off-putting about this business. The good news is two-fold: You’ll get used to the forms, many of which merely call for a signature or two and a few checkboxes.
Much of the legalese is boilerplate and is merely included in the paperwork as a matter of law. Secondly, online documents and document filling apps are a wonderful aspect of the computer age and can help you get through the “red tape” aspect of investing in real estate.
Find and learn from someone who knows the business.
Having a mentor will go a long way toward helping you overcome early challenges and turn them into wins. In the world of real estate, a competent mentor is invaluable and can show you how to learn from the inevitable mistakes you will make. A mentor can also serve as living, empowering proof that everyone makes mistakes in this business and most go on to earn a decent income in spite of those errors. You, on the other hand, get to learn from those mistakes without the consequences.
Don’t try to predict the long-term market.
At least half of all the real estate pitfalls are related to this one aspect of the business. As is the case with stock market investing, there’s no magic formula for predicting the future. Anyone who tells you so is either mistaken or trying to sell you something.
Remember that real estate is like all other major investment classes in that its fortunes rise and fall with the general economy. When a recession hits, things can get tough for everybody. But when times are good, there’s plenty of money to be made. In order to keep a level head and overcome self-doubts, understand that no one can predict the long-term health of the economy.
Rehabbing properties is hard but profitable work.
Many property rehabbers are surprised by the amount of sheer hard work it takes to turn a small property into a profitable sale. If you find yourself facing endless amounts of rehab work on a tiny house you just purchased, don’t let it get you down.
Whether you hire contractors or do the rehabbing yourself, your time and money will be well spent. In fact, many experienced real estate investors gravitate to this sector of the business after selling, buying and flipping for several years.
No other area of real estate investing allows you so much control of your own fate. So, when you feel as if you’ve bitten off more than you can chew, keep in mind that a well-renovated property can return substantial amounts of profit.
Yes, those long days of manual labor can seem endless, but there is light at the end of the tunnel, and it’s incredibly bright.
Buying real estate properties takes time and good credit.
When your credit score isn’t what it needs to be for a real estate investment, consider taking time away from the business and take steps towards boosting your credit. Many new investors are daunted by this first step, and it stops some before they even begin.
But note that six months or a year spent on credit-score improvement can make a huge difference in your first few real estate deals. You’ll get more lenient loan terms, have a wider range of properties to choose from, and can look forward to cash flow coming in sooner.
Get legal advice early.
One of the smartest, and most cost-effective, ways to avoid common errors in the real estate business is to acquire competent legal help early on. Those willing to spend a few hundred dollars can sit down with a real estate attorney and draw up a roadmap of what they want to achieve and how they expect to achieve it.
An experienced attorney can help you find the niche that your income and abilities are best suited for.
The Bottom Line for Real Estate Investors
The business of real estate investing, financing real estate, buying real estate, selling real estate, flipping real estate, and rehabbing properties is one of the most exciting ventures you can get into without spending a small fortune up front.
When the common pitfalls happen, look at the long-term potential of high profits, financial stability, and personal accomplishment. Whatever your skills, there is something in the real estate niche for you. It is quite common for investors to fall in love with real estate investing after those first few tough years.
Millions of people all over the world have turned the “hobby” of real estate investing into a full-time job as flippers, sales agents, rehabbers, and commercial leasing moguls.
The best advice for newcomers entering the real estate investment realm is this: expect to hit numerous roadblocks, potholes and speed bumps in your journey. Perseverance, however, can pay huge dividends and who knows, you might discover a whole new vocation as a result of your investment pursuits.