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Twelve Real Estate Investor Mistakes 
You Should Avoid

To be a successful investor, there are several mistakes you must avoid. Real estate investment has many positive aspects. Many investors enjoy positive cash flow and significant tax advantages. However, if you ignore a few basic items, real estate investing can become a big headache.

You must do your homework to be successful in real estate investing. You cannot and must not rely on your instincts or gut feelings. If you do, you may be asking for trouble. Take the time and effort to learn about your current market and its condition. Find a good real estate professional to assist you in avoiding twelve common mistakes made by real estate investors.

1. Failure to plan for specific your specific needs.
There are many items that must be addressed in order to close an investment. These include money, tax benefits, appreciation, down payments and property management. You can save yourself a lot of time and money by working closely with a professional real estate agent.

2. Failure to verify the numbers.
Anyone can claim a high return rate on a real estate investment. However, talk is sometimes cheap. You must do your homework on a potential property. Check everything out very closely. Get the history of the rents, payments, taxes, deposits, expenses, etc. A good agent can act as an insurance policy for you to make sure every aspect of the property is examined in detail.

3. Becoming emotionally attached to a property.
Although ownership in an investment property generates the potential for creating wealth, remember there are some very important decisions you will be required to make. For example, how much do you reinvest into the property? How will you handle evictions if your tenant doesn’t pay? Who will manage the property? You must realize that real estate is a hands-on business that you must stay on top of.

4. Avoiding negative cash flow.
When you have a property that has more “out go” than “income”, it can drain your capital in a hurry. The result is frustration and stress as long as negative cash flow continues. Too many beginning investors expect continuous appreciation in value and positive cash flow. That does not always occur. There will be ups and downs from a financial perspective.

5. Failure to do a professional home inspection. If you want to protect your potential investment, have the property thoroughly inspected by a professional home inspector. A professional home inspector will look for all types of current and potential problems in the property. He will examine the structure, pest problems and other problems most people will overlook. Never purchase a real estate investment property without getting a professional inspection. A few hundred dollars up front can save you thousands of dollars in potential future profit.

6. Under-insuring the investment property.
An investment property is just like any other property. It carries liabilities that you must address. You will have tenants, cars, parking lots and other types of property liability. Make sure you have enough insurance to protect you from these liabilities. A good insurance professional can help you have a secure investment.

7. Review and approve every document carefully.
It will seem like there are hundreds of documents to review and approve when you purchase your first investment property. There are such papers as building permits, zoning laws, lease and rental contracts, inspection reports, title polices, etc. The list of documents goes on and on. Remember, the reason you have these documents is to protect your investment. If they were not important or necessary, you wouldn’t have them. A good real estate professional can help you review and approve these documents so that nothing gets overlooked.

8. Failure to get a bill of sale of all personal property. The normal real estate purchase contract may not include all the personal properties that are involved in the sale. For example, appliances, furniture, fixtures, drapes, etc. may come with a home. Make sure you have a bill of sale identifying each of these items as part of the purchase price. You don’t want to begin haggling over personal items after you’ve purchased the home.

9. Improperly establishing rent fees.
The most expensive part of investment ownership is turnovers and vacancies. If you establish a fair rent price and treat your tenants properly, you are more likely to avoid vacancies. Remember, missing a couple of months of rent cannot make up for a higher price in rental payments. It is better, in the long run, to keep your property rented and your tenants happy. A vacant property drains cash flow.

10. Failure to qualify your tenants.
There is one thing that is more important than everything else when it comes to renting and tenants. You must check out references. Talk to previous landlords, employers, references, credit, etc. Never assume anything. Do a very detailed review of their past history. It will save you a lot of headache and money in the future if you properly qualify your tenants before you sign the rental agreement.

11. Failure to get “Estoppel Letters”.
An estoppel letter is a tenant’s acceptance letter. The tenants confirm their belief that the lease is valid and enforceable and that they are making lease payments as agreed. It is very important that the rental or lease agreement is understood by the tenant and seller.

12. Spending positive cash flow money.
Once you become a successful investor, you will have many properties free and clear. Smart investors reinvest their positive cash flow into their property. This speeds up the amortization process and reduces the total interest paid on a property. In turn, this increases your equity and net worth more rapidly.

Owning investment property can be very rewarding, as long as you do your homework. Don’t risk your money and equity by failing to complete your “due diligence” on an investment property. By working closely with a professional real estate agent, you can avoid many potential problems and make real estate investment a rewarding experience.

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Real Estate Investor Mistakes