Top 5 mistakes beginner (and experienced) investors make

1. Buying books and attending seminars, but never using what you learn: This is the most common mistake investors make. They spend thousands on programs, and then let them collect dust on the shelf. I’ve run into a few people at multiple seminars who have never bought a single house! Don’t fall into this trap. Read the books and take action.


2. Starting in the business without really understanding it: This is a very dangerous mistake to make. I get calls every week from people who went into a deal not understanding how the business works and they are now tied up in something they should have avoided. I get people calling me asking how to structure a deal where they can sell a house back to the original owner after foreclosure, I get calls from people who are keeping rental properties in their own name, I get calls from people who sign contracts to buy houses not knowing that there are liens on the property or knowing all of the costs that go into buying and maintaining the house…

If you aren’t careful, you could end up losing a ton of money, damaging your credit, hurting you name in the community, and even go into bankruptcy. You absolutely need to understand the fundamentals before you jump head first into investing in real estate. That’s why it’s so important that you keep reading and stay involved with investor communities. Smart people learn from their mistakes; wise people learn from other people’s mistakes.

3. Buying the first property they see: This is a lot like mistake number 2. People get excited about the first person who calls and are determined to make it work – regardless of whether or not it’s a good deal. For more experienced investors this becomes a desire to force every deal to work – especially in slow times. That’s going to result in an ulcer. Not every deal is a good deal, and you’re not going to be able to help everyone. You will save yourself a lot of time, money, and heartache if you set up clear investing criteria that establish what your requirements are to take on a deal.

4. Always looking for a better deal: Having investment criteria is great, but they can’t be impossibly high. This is what I like to call the paralysis of analysis. Some investors get caught up always searching for a better deal and pass up countless viable deals. If times are getting lean, tighten up your criteria a bit to fit the market and keep on moving.

5. Failing to set proper financial goals: This has two steps. The first is that if you don’t have a set, measureable, attainable goal, you will have a hard time succeeding. You need something specific to strive for. Too often in this business you hear “I want to be financially secure.” That is a noble ambition, but it’s a terrible goal. “I want to have bought and sold 10 houses and made $200,000 in the next 12 months” is a good goal. Goals should be stretchingly realistic. Too easy and you won’t work hard enough, too hard and you’ll give up. You need something that keeps you working hard, but that you can achieve if you try your best.

The second side to this is that not enough investors realize that they are running a business. You have to know exactly how much you need to make every month to keep your doors open. That is your minimum requirement. You need to keep track of your revenues, expenses, and all of the measureable data that you can like you average marketing cost to buy a house, average holding costs, average costs to sell, and average hold time. Once you’ve got those numbers, you can set mini-goals. For example: “I want to cut my marketing costs by 50% over the next 6 months.” Or “I want to cut my average hold time by 3 weeks over the next 3 months.” Once you’ve got your business up and running, these small, measurable, and attainable goals are what are going to take you to the next level.

Whether you’re a new investor or an experienced veteran, it’s sometimes easy to fall into these traps, so make sure you don’t!