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Every beginner makes mistakes. It’s part of the learning process.
It’s true of riding a bike, learning to juggle, and yes, investing in real estate. Fortunately, helpful people are often willing to share their biggest mistakes with others so that you can learn from them. Ideally, knowing the mishaps others have encountered will help you to avoid repeating them.
Dr. Peter Kim has made his share of mistakes, and he’s heard from countless others who wish they had done things differently. His article that follows details five of the more common mistakes he sees with new real estate investors.
This post originally appeared on Passive Income MD.
We seem to get a ton of questions on Passive Income Docs about how to start investing in real estate. It can initially be a very intimidating venture.
I remember when I started with a $5,000 investment in a crowdfunded deal. It was downright scary. I’ll be honest, I didn’t have a great grasp of what I was investing in. However, I knew that if I didn’t jump in, I would never learn.
Well that investment led me to invest in private real estate opportunities and syndications, and then I started purchasing my own rental properties.
All along the way, I’ve made plenty of mistakes. But more importantly, I’ve learned from those mistakes and I don’t consider myself a newbie anymore. However, just like in medicine, I feel like I’m constantly learning new things and trying to be better at what I do.
Now everyone makes mistakes when investing, but most of these mistakes aren’t as dramatic as you think. Ultimately, you can get past them fairly quickly and you’re better prepared for the next investment.
That being said, there are a few major mistakes that you can avoid that will save you from quite a bit of frustration and headache, especially as a newbie.
Here are 5 mistakes that newbies make and that you should avoid:
#1- Not Know Why You’re Investing and Not Setting Goals
Don’t just jump into an investment without having a clear idea of why you’re making these investments and what you’re trying to accomplish.
- Is your goal to create more time to spend with family and friends?
- Is your goal to be financially free from medicine and make medicine a hobby?
Then figure out what you need to make these things happen and in what time frame do you want to accomplish them.
- Is your goal to make a few thousand or twenty thousand dollars in recurring monthly passive income?
- Is your goal to reach that in 5, 10, or 15 years?
Once you have these goals, you can run the numbers on any potential investment and see if it truly helps you accomplish or get you closer to your target.
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#2 – Waiting Too Long To Get Started
Change is scary. Whether it’s starting a new job, or changing the way you invest your money – it will come with a bit of fear. The big question is whether the change is for the better, or for the worse.
To help you get past any hesitation, you can spend time getting educated and doing research on the topic. This is especially true of investing in real estate. There are so many great resources to help you get started like books, blogs, etc.
The tough part however is taking that education and taking action on it. I find that most physicians get stuck in this transition. They find themselves in “analysis paralysis” and often find themselves in the same place that they were years ago.
They’re waiting for the perfect property, or the perfect time to take the plunge. Opportunities are swirling around you at all times. But if you’re not willing to take a chance, you’ll never learn and nothing will change.
For those who have kids, I like to say it’s like learning to walk. The sooner the kid starts to try, the sooner they’ll fall. But eventually, they’ll be walking like a champ and next thing you know, you’re baby-proofing the whole house.
So the sooner you start investing, the sooner you will make mistakes, but will quickly learn to work past them. Past that point of failure is where success ultimately lies.
#3 – Rushing Into Things
Okay, I know, I just said that you shouldn’t wait forever to invest. However, it should be balanced with not rushing into things before you are ready. If you have not done the proper research and set your goals in step #1, you are not ready to start investing!
Start off by building a strong foundation first for successful investment later on. So, while you don’t want to wait forever for your “perfect” opportunity, you also don’t want to rush into the first property you see.
It’s a delicate balance. Before you invest, run the numbers and see if it makes sense before investing.
It will take a bit of time to work out the finer details when you are starting out, but you will get better at it with experience.
Make sure you do the proper due diligence and that takes us to mistake #4.
#4 – Not Doing Your Own Due Diligence
The more you know about a property, the more educated your investments can be. Do your homework on the property first and foremost. Don’t rely on a hot tip from a friend or just jump into something because the crowd seems to be.
If the crowd was so smart, we wouldn’t have some of these massive crashes that we have in the economy. People feel comfortable in the herd, however, sometimes we forget that we have to do our own analysis of a project to make sure it fits with our own investment goals and risk tolerance.
Make sure you learn how to vet these opportunities. Again, read books & blogs, listen to podcasts, take courses, etc. Be the expert as best as you can.
Overall, know what you are investing in – forwards and backwards. The more you know, the less uncertainty you take out of the investment.
#5 – Not Learning From Others
There are plenty of people around you who are successful in real estate investing. They’ve created multiple streams of income and seem to have the choice in how much they work or not.
Why not learn from their mistakes/successes? No need to reinvent the wheel.
Seek these people out and ask about their experiences. Offer something of value whether it’s your time or effort and you’ll be rewarded with wisdom and knowledge.
Look for them at local real estate investor meetups. Meet them at Passive Income Docs meetups. Find people at work, in the hospital. Bring it up in conversations in the doctors’ lounge or in the cafeteria.
I find that people are the best resources out there. They have not only helped me create the life I want, but they’ve also helped me to avoid the life I didn’t want.
Any other mistakes that I should’ve mentioned?
