Top 5 Mistakes New Investors Make (And How to Avoid Them)
Starting your journey in real estate investing can be both exciting and overwhelming.
It’s a path that has the potential to build significant wealth, but it’s also filled with risks and learning curves. As a beginner, you’re bound to make mistakes. The key to success is minimizing those errors and learning from others’ experiences.
In this post, we’ll get down and dirty with the top five mistakes new investors make and provide actionable tips on how to avoid them. By understanding these common pitfalls, you’ll set yourself up for a smoother investing journey and long-term success.
Mistake #1: Skipping Proper Deal Analysis
One of the biggest mistakes new investors make is failing to properly analyze a deal before jumping in. They get excited about a property without fully understanding whether it’s a good investment or not.
Why This Happens:
Lack of knowledge about deal analysis.
Relying on emotions rather than numbers.
Fear of missing out on a deal.
How to Avoid It:
Learn the Numbers: Familiarize yourself with key metrics like cash flow, ROI (return on investment), cap rate, and ARV (after repair value). Check out our Deal Analyzer tool!
Use Tools: Leverage tools like Dataflik to help you quickly analyze deals. These tools can save time and ensure you’re making informed decisions.
Stick to Your Criteria: Create a checklist for your ideal investment property and don’t deviate from it.
“Example:
A beginner investor purchases a property based on gut feeling, thinking it will make a great rental. After the purchase, they realize the monthly expenses far exceed the rental income, leaving them with negative cash flow. Proper deal analysis would have prevented this mistake.”
Mistake #2: Overpaying for a Property
Another common mistake is paying too much for a property. New investors often get caught up in bidding wars or fall in love with a property, which leads them to overpay.
Why This Happens:
Lack of negotiation skills.
Not understanding market value.
Emotional attachment to a property.
How to Avoid It:
Know the Market: Research comparable properties (comps) in the area to understand the market value. (Learn how to understand markets in our Deal Accelerator Vault)
Set a Max Offer Price: Before making an offer, determine your maximum offer price based on your deal analysis and stick to it.
Remove Emotions: Treat investing like a business. If a deal doesn’t meet your criteria, walk away.
“Example:
A new investor overpays for a property because they’re afraid someone else will snatch it up. Later, they realize they’ve locked themselves into a deal with slim profit margins, making it difficult to achieve a good return on investment.”
Mistake #3: Underestimating Rehab Costs
When investing in fix-and-flip or value-add properties, underestimating the cost of renovations is a critical mistake.
Why This Happens:
Lack of experience in estimating rehab costs.
Trusting the first contractor's bid without getting multiple quotes.
Overlooking hidden issues like plumbing, electrical, or foundation problems.
How to Avoid It:
Get Multiple Bids: Always get at least three quotes from contractors to ensure you’re getting a fair price.
Budget for Contingencies: Set aside at least 10-15% of your rehab budget for unexpected expenses.
Work with Trusted Professionals: Build a network of reliable contractors, inspectors, and project managers who can provide accurate estimates.
“Example:
An investor buys a property intending to spend $20,000 on renovations. Halfway through the project, they discover major plumbing issues that weren’t initially visible. The rehab budget balloons to $35,000, significantly cutting into their profit.”
Mistake #4: Failing to Screen Tenants Properly
For buy-and-hold investors, failing to screen tenants can lead to major headaches down the road.
Why This Happens:
Rushing to fill a vacancy.
Not having a solid screening process in place.
Ignoring red flags in a tenant’s application.
How to Avoid It:
Have a Screening Process: Use a tenant screening checklist that includes credit checks, employment verification, and rental history.
Check References: Always call previous landlords to verify a tenant’s rental history.
Set Clear Criteria: Be upfront about your requirements (e.g., no evictions, minimum credit score) and stick to them.
Check out my free video on “No More Bad Tenants”!!!
“Example:
An investor rents out a property to a tenant without conducting a thorough background check. The tenant stops paying rent after a few months, and the eviction process becomes a costly and time-consuming ordeal.”
Mistake #5: Not Building a Team
Real estate investing is not a solo sport. Trying to do everything yourself can lead to burnout and mistakes.
Why This Happens:
Wanting to save money by doing everything yourself.
Not knowing how to find the right team members.
Thinking you can learn everything on your own.
How to Avoid It:
Build Your Power Team: Your team should include a real estate agent, lender, contractor, property manager, and attorney.
Network: Attend local real estate meetups and join online communities to find trusted professionals.
Delegate: Focus on your strengths and outsource tasks that you’re not skilled at.
“Example:
An investor tries to manage a rehab project, handle tenant screening, and do their own bookkeeping. They quickly become overwhelmed, and mistakes start piling up. By building a team, they could have delegated tasks and focused on growing their portfolio.”
Bonus Tip: Keep Learning and Adapting
The real estate market is constantly evolving, and successful investors keep learning and adapting. Stay up to date with market trends, attend workshops, and learn from experienced investors.
Resources to Continue Learning:
Lazy Girl REI YouTube Channel: Check it out here
Lazy Girl REI Deal Vault Membership: ON SALE: $20/Month Cancel Anytime
Lazy Girl Investor Group: Join the group here for free
