Real Estate Investing Mistakes | Passive or Active Investor

by Christopher Levarek

“The only real mistake is the one from which we learn nothing.”

- Henry Ford

Doing something you’ve never done can be scary. What if you mess it all up? Perhaps you’ve heard of the term “analysis paralysis” whereby a person is frozen from taking action by fear. This paralysis is quite common and I’ll admit I myself have fallen into this trap, especially when getting started in real estate.

It took me 6 months of trying it figure out every minute detail for a real estate purchase before I even started building a team or making a single offer! So where does this fear come from? Well, most likely the idea that you will make a mistake and never recover from it financially or, perhaps, emotionally.

Firstly, let me say, mistakes are going to happen and they are essential to growth. You can not do business or invest without making mistakes. Yet, in this article, I want to list the 5 top mistakes I see new investors make when getting into real estate.

Perhaps they might just help you break that fear and take action as you plan your first or next real estate investment…

Real Estate Investing Mistakes(1-5):

# 1 Trying to Know and Do Everything

This is probably the most fundamental lesson in real estate and the biggest mistake I see new investors make. They assume they need to know everything about real estate and control every piece of the puzzle. For some reason, investors assume they need to be a full blown expert on real estate before they even buy their first property. Trust me, I did this!

This is impossible and impractical. It is like saying, I am going to go work for a company in my career but first, I must know how to do all the other job roles and understand fully the inner workings of the company. You wouldn’t do this in your career and you can’t be expected to do it in a real estate property.

You also can not be expected to play every role, so why try? You might juggle all the roles it takes to buy a property for a few months in some fashion, but I assure it eventually is typically poorly executed and un-scalable(hard to increase portfolio). Don’t do it!

#2 Making Assumptions to Save Time

Don’t assume anything. But wait, didn’t you just say you can’t know everything? Yes, I did, yet that has nothing to do with assumptions.

Assuming things in real estate is when you guess at a result or assume something will go a certain way. For example, you might assume that contractor will show up on time, or that paint will be the right color or that your investment will deliver on projections.

In each of these cases, you can and should be able to call on an expert, specialized in the topic, who can confirm your assumption to be valid.

Remember, you aren’t becoming the expert, you are simply not assuming. So call those multiple contractors to confirm bids, research the rental rates in the market to confirm an investment’s underwriting and leave nothing to assumptions.

#3 Re-creating the Wheel

Don’t re-create the wheel. Many new investors for some reason think they have to do it all themselves, see above, but they also commonly try and come up with how the real estate investment project will be done. As much as this can be exciting for those engineer/creator types, this can also be very stressful and leave a lot of room for more error/mistakes to be made as they learn.

Let me save you the trouble. Don’t re-create the wheel. Find someone who has done the strategy(flips, buy&hold, short-term rentals, etc) you want to do and replicate their process. You can always “improve” the wheel or process. Yet, you will save yourself a lot of headache by simply copying your way to success in real estate, especially initially.

#4 Working with the Wrong Team

Don’t hire just anybody. You might notice a pattern in all these mistakes and much if centers around working with a team. Whether you are investing in a syndication or passive investment or buying real estate property to manage yourself, you will need a team to be successful. At a minimum, a lender, a real estate agent, a property manager and contractor are key to success in an active real estate investment.

Do not hire your cousin who is a real estate agent, simply because he is your cousin. Do not hire the first contractor you meet because they answered the phone. Do not work with a bank lender specializing in home residences if you want to buy a triplex. Do not invest with the first investment firm you come across on the internet.

In brief, do not just check the boxes regarding the team or partners. Many new investors make this mistake and it can be avoided by simply doing some due diligence and checking reviews on team members. Work with the right team for the job or with those who have the credibility/experience in your chosen strategy.

#5 Selecting the “Wrong” Strategy

This is a starting mistake and perhaps should be at the top of this list. I can’t tell you how many times I have been on real estate forums and hear a new investor exclaim “I am a wholesaler!”, yet has no idea or experience in that chosen strategy. Or, watching a new investor with a full time job and family who desires time freedom yet buys a rental property only to quickly become overwhelmed and stressed with less time freedom.

In both of these scenarios, these investors are not clear on their why. They have chosen an investment strategy at random. This strategy may or may not align with their why or lifestyle.

In the case of the “wholesaler”, this appears to be the easy route to them and so the strategy was chosen. In the case of the family man, buying a rental property perhaps seems similar to owning a house and so due to familiarity, this strategy was chosen.

This is in itself a common mistake by new investors. Do not select a strategy based on what’s familiar or what appears easiest. Rather, choose an investment strategy that matches your lifestyle and why. IF you have more time freedom to manage a rental property or coordinate a wholesaling business, then this might make sense. IF you don’t however, perhaps investing passively in a vetted deal with a good team makes more sense.

Note, you can always change strategies and move on. Yet, it is far easier knowing why you are getting into investing and choosing a strategy that will give you that earlier with less headache. Knowing your why could also have the benefit of strengthening your commitment in the short term or long term. I recommend reading this article on knowing your why if you need help getting started.

Choose the right strategy for your lifestyle and why.

In Final

Hopefully the above list helps you see some of the more common real estate investing mistakes by new investors. This list is not exhaustive but it of course calls attention to some of the more typical I’ve seen. Let me also again mention, nobody invests into real estate without making mistakes. It is part of the process and will happen.

Yet, the goal should always be to learn from those mistakes and improve with every investment. Only this way can we magnify success and compound growth. Wishing you much success and Happy Investing!