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The 6 Biggest Mistakes Real Estate Investors Make (And How To Avoid Them)

Wednesday, April 17, 2013 - 10:00am

I once had a tenant secretly move 15 children into her 800-square-foot house.

You can imagine the damage when she moved out. I don't think I've ever seen so many cute drawings of ponies, rainbows and stick figures in my life... and they covered every wall. Apparently, I had not been watching this tenant closely enough and didn't realize she had invited all her friends (and their kids) to move in.

It's this kind of story that scares many people away from investing in real estate. However, despite the mistakes I've made, I wouldn't trade my investing business for anything.

Real estate investing has a lot of great things going for it: the retirement planning, the wealth building, the tax sheltering, the sense of accomplishment from being able to own something that the tenants pay for each and every month, and a whole lot more.

However, some common mistakes that many investors make can make life difficult and expensive.

But I'm going to show you how to avoid those mistakes so your real estate investments provide the highest returns -- and least stress -- possible.

1. Not Managing Effectively
You see, with the 15 kids, I was managing my property instead of hiring a property manager. I didn't do it effectively, though. If you are going to manage your own properties, you will need to drive by the property, interact with your tenants and do all the other jobs that come with being a "landlord."

How to Avoid This: Watch over your properties and make sure the rules are being followed. Check up with your tenants, schedule regular inspections and ensure you deal with problems quickly and efficiently.

2. Deferring Maintenance
Many landlords refuse to fix things quickly because either:

  • It costs more than they want to pay.
  • They just procrastinate.

This mistake has caused more grief than you want to know. Problems only get worse with time, and tenants are more likely to leave -- causing even more costs when the unit sits vacant. Problems will not fix themselves, so you may as well get a jump on it and keep your tenant happy.

How to Avoid This: Fix maintenance problems immediately. Don't procrastinate, or the problems will just compound. Keep a notebook/calendar on you (or a digital one in your phone) and use it to keep maintenance requests straight. However, if you don't want to do the work yourself, see tip No. 3.

3. Doing It All Yourself
Let's talk about that "15 kids" situation for a moment. The mistake of not managing effectively could have easily been avoided by hiring a property manager to manage the properties. Instead, I tried to do everything myself at the beginning, which led to more problems, more costs and more stress.

This is a mistake made by many new investors. When you are beginner, it's easy to think that it would be cheaper to do everything yourself. However, hiring someone who is trained to do a job is sometimes more efficient than trying to do it all yourself.

How to Avoid This: Know what your areas of weakness are and hire those things out, whether it's management, plumbing, cleaning or whatever.

4. Underestimating Repairs And Time
This is especially true for those investors specializing in properties that need significant repairs before using. In general, most repairs cost more and take longer than expected. If you don't properly account for the time and cost, your great deal could turn into a money pit.

How to Avoid This: Always be conservative in your estimates. For beginners, I recommend doubling your repair budget and timetable -- and if it still makes sense, proceed. Hire a qualified contractor to give you a written bid before any work begins.

5. Treating Real Estate Like A Hobby
Real estate investing is a business, not a hobby. Many investors flippantly treat their properties as something they do for fun, then they wonder why they have so much stress, pain and financial loss.

Do you know what your return on investment is for your property? If you were running a business, you'd be sure to know -- and in real estate you had better know as well.

How to Avoid This: Create systems to manage your business, maintain proper accounting and record keeping, and run your real estate investing company like the business that it is. Find ways to increase efficiency and outsource tasks.

6. Letting Fear Hold You Back
Many real estate investors never experience all the great things real estate investing can do for them and their personal finances. They let fear of the unknown, fear of failure, fear of loss and fear of risk hold them back.

How to Avoid This: The easiest way to get past that fear is by learning everything you can about a topic and mixing with others who are successful already. With each real estate investing term you learn and each new successful investor you sit down with for coffee, your confidence will grow.

Action to Take --> Real estate investing doesn't have to be miserable (and can actually be pretty awesome) if you avoid this one thing: ignoring the advice of others who have come before. I have made each of the above mistakes in my investing career, but they could have been avoided if I had simply taken the time to connect with other investors and learned from their mistakes.

This article originally appeared on InvestingAnswers as
The 6 Biggest Mistakes Real Estate Investors Make (And How To Avoid Them)

P.S. -- If you enjoy the benefits of earning regular income from real estate investing, you might be interested in earning $25,000 to $55,000 in extra income every year for the rest of your life by investing in 10 stocks my colleague Carla Pasternak calls Retirement Savings Stocks. Some pay quarterly. Others pay monthly. All offer you a safe, stable, and reliable source of high income even if the market goes down. Learn more here.

Brandon Turner does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.