Best Way to Fail as a Real Estate Investor

Best Way to Fail as a Real Estate Investor

by Marco Santarelli

It's not hard to fail as a real estate investor. Many people get excited about making their first million and forget there are guidelines you must follow to become successful. Here is a list of what to do in order to fail in as a real estate investor:

Not Knowing Your Market: If you don't know what's selling in your local market, you risk purchasing property that is overpriced or destined to sit on the market for a long time to come. This is especially true if your exit strategy is to only hold it short-term. A successful investor gains a detailed understanding of the market they are considering, from comparable prices and the days-on-market, to the commercial and population growth in the area.

Pay Full Price for the Property: When you purchase any property at full price (or over market value), you have little to no equity in the property. And although you stand to gain equity over time through appreciation, you might find yourself in a negative equity position if there is a small or short term market correction.

The other problem with paying full price is that your cash-flow will be lower if there is any at all. Ideally, you will want to buy property at least 10% below market value, but that is not always possible, and there are many great deals to be found close to market value. The successful investor will look for properties in growing markets that provide positive cash-flow with a 10% to 20% down-payment.

Don't Write a Business Plan: If you're a real estate investor, then you're in business for yourself. You must write yourself a business plan. Failing to make one is like planning to fail. Every successful business has a written plan. The smart investor will lay out the strategy to guide them through and will know what do to when a problem occurs because they planned for it. A good business plan will include both strategic (goals) and tactical (tasks) plans.

Bigger Property Means More Money: Don't assume that buying a more expensive property will net you a larger profit when you sell. Larger properties have larger carrying costs. So if your strategy is to buy, fix and sell, then you may find your profits eroding from the monthly carrying costs. Generally speaking, the median priced, bread-and-butter properties are the ones that sell the quickest because they have the largest buying audience. The best way to start making money in real estate is to start off small and work your way up to larger properties. Remember that big properties can take much longer to sell, while smaller ones can be sold in a shorter time with a good profit margin.

Over-Improve for Profit: Over-improving a property can be a waste of time and money. Spending money for unnecessary improvements and expecting to get more money at the time of sale is a recipe for failure. The only improvements that should be made are the ones which pay for themselves. Generally speaking this would include kitchens, bathrooms, and inexpensive cosmetic improvements.

If you are buying a fixer-upper, then carefully calculate your repair costs and ensure that you can sell it for enough to net you a profit after all expenses are paid. The successful investor knows the less money you put into a property the more money you net on the sale.

There are so many ways to succeed when it comes to real estate. It's not hard to make the money if you know the mistakes to avoid. Let this be a guideline for your success. Some of the best ways to fail are listed here.