What Is the #1 Mistake New Investors Make?



© Jakub Krechowicz - Fotolia.com

What do you think is the biggest mistake that new real estate investors make? If you ask a dozen real estate investors, you will most likely get the same answer from the vast majority of them.

“They paid too much for their first few houses”

By and large this is the #1 mistake most of us made when we were brand new. We just didn’t know what a good deal was.  (We thought we did). It was typically later down the line we realized that we had paid too much for the house.

So how can you keep from making the same mistake?

Do Your Homework

Don’t try to be an expert on every neighborhood. Invest in areas that you know. If you aren’t really that familiar with any areas and their home values, then it’s time to get some education. Do some research and choose an area to work in or to “farm”. Here are a few tips for you that will help you learn the area:

  • Visit open houses on the weekends and see what retail buyers are paying for homes. Notice the condition of these houses. Are they updated? This is your competition. Whether you plan to wholesale the property to a rehabber or rehab it yourself, you need to know what a retail sale looks like in that area when making your offer on a property.
  • Drive around your farm area during the week and look homes that are obviously being rehabbed. Telltale signs are dumpsters in the yard, trucks with building materials parked in the driveway, and ladders leaned up against the house. Just walk in, introduce yourself, and tell them who you are; a brand new investor looking to get into the business. Tell them that you are interested in their project and ask them to tell you about the scope of the work. You will be surprised at just how helpful folks will be.

If you want to know how much they paid for the house or how much other houses are valued at in the area, I would suggest you get a subscription to your local PVA or tax assessor’s site. In my city it only costs $25.00 per month.

  • Call for rent signs in the neighborhood and talk to the landlords. Find out what the rents are for the area. If you are planning to sell your properties to landlords, they are certain to ask you what you think the house will rent for.
  • Take a look at the comps for similar houses. If you don’t have access to the MLS, find someone that does that you can work with. When I first started out I knew someone that worked for a Realtor. I offered to pay her $25.00 each time I bought a house. She was more than happy run comps for me in her spare time. I also thanked her by taking her to lunch every now and then.  Another bonus that came out of this relationship was that she let me know when they had an investor-buyer that was looking for property. I managed to find a buyer for a couple of my houses this way. I always rewarded her with a crisp $100 bill just for letting me know. She wasn’t expecting anything so she was thrilled.

Learn From Experienced Investors

If you don’t already belong to your local REIA (Real Estate Investors Association) you can find one in just about every major city. Once you find the one that is nearest to you, become a member and get involved. This is where you will find your first mentors. Get there early and hang out with other investors. You will be surprised at just how willing they will be to help you succeed. If you don’t know where your nearest group is you can find one here at http://www.nationalreia.com/.

Don’t forget to give back to all those folks that have so generously shared their knowledge and experience with you. Volunteer to help out at the meetings. They are always looking for folks to do those “less glamorous” jobs like manning the sign in sheet. This job is a great way to meet the members.

Invest In Your Education

All successful people are lifelong learners, and real estate investors are no different. Commit to being the best that you can be.  Make a commitment to yourself to spend one hour each day learning. There is a wealth of information out there that is free just for the taking. Visit the popular real estate investing blogs and forums. These are great places to learn, and you will find investors at every level of experience.  Check out books at the library, and get to know other investors online. You can find them easily just by doing a search. You don’t need a lot of cash initially to get started with your education.

One Final Tip

As soon as you can afford it, get a coach. There are great coaches that don’t cost a lot of money. These experienced investors can shave years off your learning curve and can keep you from making some costly mistakes.