Common Mistakes Real Estate Investors Make Early On And What To Learn From Them

Every real estate investor goes through a learning period as they start out, when mistakes and missteps are quite common as you learn the ropes of your trade.

Although potentially leading to regrets and frustrations, mistakes made early in your property investment career can actually be a valuable learning experiences that help you avoid more significant issues later in life. Learning from these real estate errors can be helpful, rather than a hindrance.

Fifteen members of  Forbes Real Estate Council  weigh in on what mistakes most real estate investors make early in their careers and how these common mistakes can become valuable learning experiences.

1. Hurrying Into A Purchase

As a new investor, it’s key to study your market and be patient before purchasing a deal. Real estate investing is exciting, but hurrying into a purchase can create problems that have a lasting impact on your investing dreams. Make sure you spend an incredible amount of time understanding your market conditions (rents, resale values, neighborhoods), and review hundreds of deals before buying one. –  Brian Lawton ,  Property Revival Realty

2. Not Knowing Your Market

The biggest mistake I see real estate investors make is not knowing their market. They rely on real estate agents, wholesalers or other investors to tell them what homes are worth. The real estate investor should know values better than anyone if they want to be successful and make good decisions. – Mark Ferguson ,  InvestFourMore

3. Underestimating Renovation Costs

The most common mistake I have seen is underestimating the amount of dollars they will need to accomplish the renovation ideas they plan once they acquire an asset. The time for this is in due diligence, where you get several quotes from contractors on the various rehab projects that are needed. An investor needs to set up a budget and stick with it, holding those quotes in due diligence accountable. –  Rue Bax ,  ABI Multifamily

4. Failing To Stick To The Budget

Sticking to a budget is key when investing in a property. When you are new to investing, it’s difficult to not be excited and emotional. Getting too emotionally invested can mean getting caught up in bidding wars, or overspending on renovations. Also, make sure to study the market before deciding on an investment property and be patient to wait for the right opportunity. –  Beatrice de Jong ,  Open Listings (YC W15)

5. Placing Illegal Signs

Infomercial pitches tell novice investors to place bandit signs on telephone poles using national brands because it’s cheap. This is almost always illegal, is litter and may result in fines. When starting a business, be ethical and legal from the start to build a good reputation — don’t break the law or knock off brands. –  Jeremy Brandt ,  WeBuyHouses.com

6. Not Accounting For Soft Costs

Many new investors fail to account for “soft costs” when analyzing a deal. Expenses like closing costs, agent fees and carrying costs for the average days on market for comparables are often overlooked and serve as a harsh but valuable learning experience. –  Daniel Huertas ,  Washington Capital Partners

7. Confusing Investing With Speculating

If you are counting on future appreciation or other positive market changes to make your investment work, then you are not investing, you are speculating. That can be OK, even great, but you need to know the difference. A true real estate investment should offer reasonable risk-adjusted returns the day you purchase it. Don’t make the mistake of justifying a bad investment with careless speculation. –  Sean O’Toole ,  PropertyRadar

8. Not Discounting For Hurdles

Smart flipping requires thoughtful budgeting. Many investors early in their careers buy houses with more than one hurdle (such as small lot, no parking, busy street) because those are the cheapest to acquire, and then overspend in the rehab process by using expensive finishes or doing too much costly structural work, without remembering to discount their future market value. Leave room for the discount! –  Courtney Poulos ,  ACME Real Estate

9. Falling For Pretty Properties

Beginning real estate investors often fail because they yield to emotion. Granite columns, pretty landscaping and quartz kitchen countertops have a place in your primary residence. But when it comes to income property, it’s about cold facts, not warm feelings. The fact is that those amenities cost investors substantially more. Renters only pay a little more. It’s a losing formula. –  Keith Weinhold ,  Get Rich Education

10. Forgetting The Importance Of People

Investors get caught up in the stats and demographics of a particular area, but what they fail to realize is that those numbers are not going to make them a successful investor. It’s the people they associate themselves with that will make them money. They need to find people who have their best interest at heart. Success in real estate is about long-term relationship building. –  Engelo Rumora ,  List’n Sell Realty

11. Not Having The Right Team In Place

The biggest mistake any investor makes is not having the right team in place to lower the risk of failure. This mistake can turn into the most valuable lesson, as most investments require loads of research and knowledge to be successful, so not picking the right team members can teach you how to find the right people with the right knowledge to best execute your plan. –  Collin McDowell ,  Greg Garrett Realty.com

12. Asking Friends And Family For Funds

Novice real estate investors may find a great opportunity, but don’t have the funding aligned with the budget required. Often, they reach out to friends and family to fill the funding gap, as this may seem to be the easiest money and the best path to secure the deal. My advice is to go speak with more lenders and advisors or even consider seller financing. If possible, find another way to get the deal done. –  Garratt Hasenstab ,  The Mountain Life Companies™

13. Taking The Low-Cost Option

Taking the low-cost option is an easy mistake early in a career. Every dollar counts, as real estate is a capital-intensive business. When reviewing bids from service providers that appear to be similar on the surface, it’s easy to take the low-cost option. The hard lesson learned from experience is you often get what you pay for. Dig a layer deeper to uncover the nuances and pricing rationale. –  BJ Turner ,  Dunleer

14. Not Using A Good Local Broker

Here are most common mistakes that could be avoided by working with an experienced broker: fear of making a financial mistake, falling in love with one property, believing you can flip and get a quick gain without adding value, purchasing properties not from motivated sellers, not having a good exit strategy, obtaining expensive financing with prepayment penalties, not collecting data on income or expenses. –  Elliot Bogod ,  Broadway Realty

15. Giving Up Too Soon

Most newbie real estate investors don’t realize how difficult this business is. There are tremendous opportunities to achieve financial freedom, but nothing about real estate investing is easy. Just like every business, there are “people” issues, financial issues, legal/regulation issues, etc. Successful investors understand that the business (marketing, operations, etc.) is the business. –  Mike Hambright ,  FlipNerd.com

– Common Mistakes Real Estate Investors Make Early On And What To Learn From Them