The 5 Biggest Mistakes Real Estate Investors Make In Their New Businesses And How You Can Avoid Them

Submitted by: Charrissa D. Cawley

Starting down the real estate investing road can be a perilous journey, full of pitfalls and the ever-present potential for making a devastating financial decision that could cost you potential profits, lost time, and could possibly rob you of the real estate investing dream. Here are five of the biggest mistakes that real estate investors make when first getting started and how you can avoid making them.

1. Treating real estate investing as a hobby.

Real estate investing is a business and it has the potential to forever change your life. However, failing to treat it like a business can have devastating financial consequences for many years to come. One key consideration that you have to constantly be aware of is that real estate is a paperwork-intensive undertaking. When you’re purchasing property it’s imperative that you remember that dates are of critical importance. While missing a doctor’s appointment might yield a lecture from an irritated receptionist, missing a critical date in a real estate transaction could cost you thousands, especially if you fail to get a key document to the IRS on-time.

2. Not investing in an adequate real estate education.


An adequate real estate education is just as important to your future success as a proper legal education is to an aspiring attorney. If you cut corners or opt to “wing it” you’ll very quickly discover that your lack of knowledge can cost you tens of thousands of dollars in lost profits or missed opportunities. While it might be tempting to cut corners, resist the temptation to get as deeply into the game as you can without first investing in a comprehensive education. There’s a direct — and proportional — relationship between what you invest in learning how to invest in real estate and how much you can earn and in what time frame.

3. Not having multiple financing sources available.

While you can reach your real estate investing dreams without cash or credit, you do get where you’re going much more quickly when you have multiple options available to you. Bank financing is the preferred method of financing your real estate deals, but you could very well find situations that lend themselves very well to having other sources of cash available to you. This means that private money and hard money sources could be handy resources for your investing activities depending upon the situation. Maybe time is of the essence and you have to have cash in hand within 10 days or an explosively lucrative real estate investment will fall apart. In this situation, traditional bank financing won’t usually work, but if you’ve lined up private money, you’ll have the ability to take advantage of that really hot investment opportunity that just might change your life.

4. Failing to understand the importance and role of credit.

Many Americans treat their personal financial situations with the respect that they might give to a used car salesman or a telemarketer. This is unfortunate because a good credit score can mean a lower interest rate, better financing terms — and much higher profits. The cost of borrowed money is directly tied to your credit score and that score is determined by the way you handle your financial transactions. By understanding the importance and the proper role of credit to your success you can directly impact how successful you will be in the world of real estate investing.

5. Failing to Plan for Financial Success.

Too many real estate investors handle their investing careers with much less seriousness than they should — and it comes back to haunt them in the form of huge tax bills. While you can sell a property for a huge profit, in many cases there is a better way to unload a property. Instead of simply selling a property and paying a huge tax bill, it’s possible to indefinitely defer any taxes due by taking advantage of pro-investor strategies such as the 1031 exchange. Plan to succeed financially, but also look at the ramifications of what each decision could have on your bottom line.

Over the course of a long real estate investing career, these mistakes can cost you many thousands of dollars. While nobody sets out to spend more than necessary by making boneheaded mistakes, every investor eventually makes some. Avoid some of these pitfalls and your investing portfolio could be much thicker and you could be much happier.

Plan well and maximize your profitability. Not only is it a good idea, it’s just smarter to keep as much cash as you can in your bank account where it can do you some good.

About the Author: Charrissa Cawley is the founder of

, one of the fastest growing real estate investment training organizations in the US in addition to

, the top rated Real Estate Investor Community on the web today.


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