What are the top mistakes that real estate investors have made? What do they wish they could go back and do over?
No one is immune to making mistakes. Or at least falling short of executing on the very best moves from time to time. The good news is that we can dramatically reduce the real estate, investment, business, and life mistakes we make by learning from the blunders of others. In Tony Robbins’ book ‘Money, Master the Game: 7 Simple Steps to Financial Freedom’ he reveals that the top priority of the wealthy is not to lose capital. The wealthiest, and the true investment gurus, are not the big risk takers most think. They make calculated decisions which are designed to first preserve their capital, and then deliver great returns on investment. This is clearly only possible by obtaining all of the facts and insights they can, as well as learning from the mistakes others have made, in order to prevent falling into the same pitfalls. So what are some of these mistakes? How can you hack your way to more financial success, faster than your predecessors?
Mistake #1: Not Completing Due Diligence
The truth is that 99% of real estate fraud, and major financial blunders could be avoided by conducting sufficient due diligence. This can be one of the hardest mistakes to admit to. In the Art of Manliness’ two part series on Personal Responsibility and Why Is It So Hard to Own Up to Our Mistakes we find out that passing on the blame is a cognitive, psychological behavior that we are born with, and continue to develop with conditioning since childhood.
“It wasn’t me” is the famous childhood escape phrase that comes almost invariably when parents rush into a room after hearing a loud crashing sound. Even when no one else is there. The above referenced insights claim that this comes from the inability to balance our egos with ‘failure’. Then there is the natural instinct to avoid pain. Admitting a mistake can mean punishment. And few want to attract more of that. This is why when so many lost during the real estate downturn that began in 2005 we began hearing all types of excuses. “No one could have seen that coming.” “The government (or president they didn’t vote for) messed it all up.” “Even the big banks went bust.” Or it was all a conspiracy by major financial institutions.” There may be just thin enough threads of potential truth in some of these excuses that allow people to give themselves a pass in believing and quoting them. But really deep down the fact is that we can do things differently. And thanks to technology we are all better equipped to conduct superior due diligence, and to better educate ourselves on real estate market cycles, the indicators of change, and sound investment principles.
While few really expect any type of real estate slow down anytime soon, there are many dangers of failing to conduct due diligence every day.
- Title fraud and flaws
- Taking on unexpected debt and liens
- Phantom properties
- Overpaying for real estate
- Being burden with unforeseen repair costs
- Underperforming assets
- Legal liabilities and lawsuits
8 basic due diligence steps for every real estate investor:
- Learn your real estate cycles, timelines, and influencing factors
- Vetting investment advisors, managers, escrow managers, and vendors
- Understand the local market
- Independent property valuation
- Title searches and insurance
- Shopping for the best mortgage loans, insurance, contractors, etc.
- Reviewing leases, and obtaining estoppel letters prior to acquiring income property
- Property inspections
Quick Tips for Hacking Success:
- Determine to learn from the mistakes of others, instead of trial and error
- Ask questions instead of blindly following the status quo
- Be smart enough to know what you don’t know
- Take personal responsibility for your financial future
- Invest in your education
- Get an accountability partner
Mistake #2: Not Comparing All the Asset Classes
One of the biggest newbie mistakes in real estate is just running with an investment because “everyone else is doing it.” There are numerous ways to invest in real estate. There are more real estate sectors and asset classes than most are aware of.
Flipping single family homes, or buying foreclosures to convert them into rental homes has become incredibly popular since 2011. And many individual investors are stuck in antiquated investments like stocks as the default go-to of their grandparents. But there are other choices.
Then there are a number of asset classes to evaluate, including:
- Multifamily apartment buildings
- Industrial property
- New construction
- Raw land and lots
- Office buildings
- Retail property
- Residential 1-4 family units
- Mixed use properties
- Mobile home parks
Do you know how these different asset types stack up? How do their fundamentals, current opportunities, and future performance potential differ? Unless you know, you are missing out on the best opportunities, and are failing to maximize your financial potential, and lifestyle and achievement potential.
Mistake #3: Overlooking Turnkey Property Investing
Following on from the above; it’s only smart to compare the full variety of investment strategies, and vehicles that are available. The status quo, or hot trend of the moment may no longer be the most profitable choice, or more importantly; the best choice for every individual.
Stocks are still popular because they are easy to invest in. This is also one of their biggest downfalls. They are easy to manipulate, pump and dump, and are exposed to skittish amateur investors. And the downside is, well, bankruptcy. At least if individuals are not diversified. This leads those that are seeking benefits like lower risk, the safety of tangible assets, and higher upside potential in terms of yields and lump sum gains, to invest directly in value add real estate deals. This is epitomized by rehabbing houses and also building condos. Of course these strategies have their own risks too. And like becoming a DIY landlord, it can be extremely time consuming.
Fortunately there is a hybrid option. This is turnkey real estate investing. Turnkey property investing may be relatively new to mainstream American investors, but it has been used as the go-to solution for the wealthy, sophisticated, and international property investors for many years. In fact, most busy professionals in Europe or Asia may not consider anything else.
The benefits of turnkey real estate investing include:
- Hands-free property management
- Pre-vetted investment opportunities
- The safety of direct investment in real estate
- Value-add done for you
- Truly passive income
Turnkey means done for you due diligence, property screening, improvements, leasing, and management. All individual investors need to do is get on with what they love doing most while watching the deposits go into their bank accounts.
Mistake #4: Not Getting Out of ‘the Comfort Zone’
New results require new actions
It is only common sense that if we want different outcomes, we have to do something different. Yet, so many simply try doing more of the same, for longer, hoping to achieve something they haven’t yet. This is the epitome of the rat race.
Not everyone likes trying new things. However mislead, many find comfort in repeating the same actions, again and again. So how can individuals break free from this self-sabotaging habit in order to get what they want?
Embrace & Minimize the Chance of Failure
Shark Tank investor Barbara Corcoran is well known for proclaiming that the key to success is embracing failure. Obviously this doesn’t mean taking ridiculous risks with money you can’t afford to lose, or investing wildly. Rather it refers to being willing to try new things. If you are willing to try new things, and reduce risk by learning from the mistakes of others in advance, you are already putting yourself on the road to success.
Get a Grip on Reality
The ‘comfort zone’ that keeps so many enslaved to the rat race, and dooms others to failure in investing is an illusion. It is a mirage of safety, when it is really the direct opposite. Don’t believe it? Do the math. Will doing what you have been really provide for the lifestyle and goals you crave to achieve? Has, or is it really putting you on the right track? Can you really multiply the number of hours you work to get ahead? What about inflation, taxes, and not being able to work as long as you plan? The vast majority have no reasonable hope of retiring to the lifestyle they dream of at any early age.
Do that math. How much do you need? How much extra do you need to stay safe? How close are your current income and wealth building tactics to really delivering? Check the disparity and risk between your results and your dreams. The reality for most is that this ‘comfort zone’ is actually a financially disastrous hot seat. Stepping out of that ‘comfort zone’ is the only way to really ensure comfort later. So take that reality check; light a fire under yourself, or at least smell the flames of the fire that is already there. Often the rat race is like poisonous gas you can’t see or feel impact of yet. But it’s there. And this applies even when making high six figure sums a year. Cut that choking carbon dioxide out, get more oxygen in to fuel your financial goals and needs.
Mistake #5: Not Asking for Help
“If you want to go far, go together”
There is a reason why venture capital firms prefer investing in startups that have multiple founders. There is a reason that serious companies have a board. And whether you investigate the real stories and habits of good presidents, Olympic athletes, or the most admired investors and business moguls; they all have help.
Specifically they have:
- Mentors and coaches
- Successful advisors who embody the results they crave in their own lives and finances
- Have teams of helpers
Real estate remains one of the most powerful financial tools available. Yet, the results can be dramatically different, depending on how well prepared investors are. Learning from the above mistakes can empower individuals to enjoy deal after deal that is top, not flop. So find a new mode, evaluate the assets and investment strategies available. Consider turnkey investing, get help, and never compromise on due diligence.