5 Reasons Real Estate Investors Fail
Here are 5 common reasons that new real estate investors fail.
1. They never actually get started!
Many people who want to become real estate investors will go to a seminar or take a course and get all excited but never take ACTION! This happens for several reasons.
When they get home, they are enthusiastic and start studying the course but quickly become overwhelmed. When we become overwhelmed, our mind tends to shut down so we put the course back on the shelf, never to be opened again.
They then go to the next seminar and repeat the same behavior. So how do you overcome this behavior?
For me, it was finding a mentor who could help me learn and guide me in my decisions. This can help you have more confidence knowing someone is there to help guide you and answer any questions. Which will drastically shorten your learning curve.
2. Will do a deal just because someone said 'yes' to them.
Many new real estate investors I've encountered come to me all excited about having a deal. When I ask them to explain to me the terms of the deal, it is clear to me it is not a deal in their best interest. They become so excited when someone says YES, they seem to forget that the details of the deal matter.
They may even close on it and then later on, realize that it was not in their best interest to have bought that house. Then it is too late to get out of the deal or try and renegotiate. So they are stuck with a house that might take them down.
The best way to prevent that is to get advice from someone with experience before you close. Paying for some education will probably be much cheaper than learning through mistakes and bad deals.
3. Trying to buy something beyond their reach and expertise.
A friend of mine was a brand new investor and I agreed to help her look for her first property. She was a very hard worker and was diligently looking for someone to say YES.
She brought me a lead on a large apartment complex that was clear across the country. It was in Florida and she lived in California. After talking to the seller or actually the seller's broker, I found out the seller was in no way motivated to sell on any terms other than all cash.
My friend would have been better off focusing on something smaller, like a single family house, closer to where she lived. As she had limited funds and absolutely no real estate experience.
4. Get lucky on your first property.
Sometimes a new investor will just run across a great deal on the first try. Congratulations, on getting a great deal! But be careful, not everyone will be so lucrative and easy.
When we have instant success, it can really hurt our mindset. We tend to start thinking we are so smart and that this business is always easy. Ah, young grasshopper, things are not always as easy as we think.
Early on when we think we have it all figured out, life tends to throw us a curve. So just be careful.
When we get lax we don't do all the things we should do, such as due diligence before buying a property. Maybe you bought a corner lot where a gas station was, thinking it was a terrific deal only to find out you now have a problem with contaminated soil and the EPA. Since you are now on the title they can look to you for cleanup costs. OUCH!
5. You had a limited amount of money and spent it all on one deal.
Most new real estate investors are starting out with little money, I know I did.
If you have a big bank account, it is my experience that it will make you lazy in house buying. You may not search for the best deal or negotiate the best deal, you may wind up paying to much. You don't have to be very creative.
You will also run out of money fairly fast, unless you own a hedge fund.
Having little or no money will force you to find and negotiate get better deals. It will help you sharpen your negotiating skills. Even if you have a fairly big nest egg, still negotiate like you don't, it will make you stronger.
The other benefit is you will make bigger returns on your money. One of the beautiful things about real estate investing is leverage. If you increase your leverage and decrease your risk you will make very high rates of return.
High rates of return should be your focus in starting so that you can build your nest egg faster. Many conventional real estate investors think maybe 10-12% on their investment is good. You can create much higher returns than that.
If you can get in for no money down and no additional investment, then sell for a $25,000 profit. What is the return on that? It's infinite I'm pretty sure you can't get a return like that from the bank.
There is a followup post on: 5 More Reasons Real Estate Investors Fail here.