How to Avoid 7 Common Mistakes When Investing in Real Estate Mistake 1 - Always being in a rush. There are people that come up with an inspiring idea, and sit on it. There are others that come up with an inspiring idea and jump into implementing it right away with full enthusiasm. Over-excitement however, can create costly mistakes. For example, I've seen a friend get so busy running around from one property to the next, that when one of her units became vacant, she just rushed through the screening process! No credit checks, no employment checks, and no reference checks. And when the tenant suddenly stopped paying rent because he never really had a job in the first place, she was in trouble and went through a painful process of getting rid of that tenant. This could've been completely avoidable if she just slowed down, took her time and properly screened her tenants. Lesson Learned - Slow down, do your Due Dilligence! Mistake 2 - Thinking Real Estate is Passive. Real Estate Investing is a business, and every business is an active business. Every property you buy is it's own business, with income and expenses, with assets and liabilities. You need to check your balance sheets on a regular basis, and take pro-active actions to make sure you don't go into the negative. Take control of your properties, don't just buy, hire a manager and forget. Lesson Learned - Be proactive, Manage your managers! Mistake 3 - Not having a plan. Once you get into real estate, start buying properties and meeting other investors, there will be TONS of new opportunities coming your way! But how do you know which one you should take and which opportunity you should walk away from? By having a plan! Write down what your real estate goals are, break them down into objectives and create a plan for yourself and your partner(s). The most important thing is to actually stick to it! Find a strategy that works for you, and stick with it. Focus! Lesson Learned - Focus by having a plan! Mistake 4 - Choosing a property by only its price. There's a common strategy being taught along the lines of "Make your money on the buy". One of the ways to make money on the buy is to buy under-valued properties. But value is not always defined by price only, and too many people become obsessed with cheap properties. Sure, you can buy a small building for $30K/unit in Windsor, Ontario, but at what cost to you? Are you prepared to deal with problem tenants? With run-down neighbourhoods? With major renovations? So before going out and buying up cheap properties, define your ideal tenant profile. Then, using your ideal tenant's needs and wants, define the type of property they'd like to live in - and focus on that type of property. Lesson Learned - What type of properties would you like to manage? Mistake 5 - Doing it all yourself. This one is building on mistake number one of always being in a rush, because if you are a one-man-show, then you probably are always in a rush. Real Estate is a business, and a business means having systems and a team to keep the business running. Otherwise you are just self-employed. If you cannot remove yourself from your business for a week without it crashing, then you do NOT have a business. To build a portfolio at a decent speed, you need a team to help you with your real estate needs. This includes a real estate agent, a mortgage broker, a lawyer, accountant, bookkeeper, handy-man, contractors, and so on. Lesson Learned - Build your team. Mistake 6 - Relying on others and missing numbers. When making an offer, do you rely on the seller's agent's expense statement to make your purchase? Do you do your own homework on the numbers for that property? Do you know the neighbourhood market rents? Vacancies? When analyzing your next purchase, you must not rely on others for the correct income/expense statement. ALWAYS check leases, add a vacancy rate, add a management fee (even if you start by managing yourself), a maintenance fee, a reserve fund, and so on. Lesson Learned - take responsibility and check the numbers yourself. Mistake 7 - Waiting for a home run. Are you still waiting for that perfect deal? For that perfect cash-flow? Those perfect tenants? That perfect price? While you wait, I'm going to go ahead and keep buying (almost perfect) properties. One of the best deals we've bought was created during the negotiation period. We decided to make an offer although it was only an OK deal, since there were some major renovations to be done, and the tenants seemed troublesome. After much discussion, we decided to give it a try anyways - and placed an offer on the property. We were happy to have negotiated a 10% off the asking price, but walked away in the middle of the inspection - because we decided that the amount of work was just not worth it! Finally, the seller came back to us and asked us what we wanted fixed- and when the seller poses that question, you ask for anything and everything! And we did, we asked for every single thing to be fixed -the roof, the furnace, the broken window, and so on. We even asked the seller to kick out some undesirable tenants! Needless to say, we finally closed on a property in excellent condition, and were able to increase the rents by 15-20% right away because the apartments were vacant. Lesson Learned - deals are created, not handed on a platter.