These are the mistakes you should avoid making if you are new to real estate investing  

Last week, I spoke with real estate investor Casey Franchini about the most common mistakes we’ve seen from real estate investors who are early in their journeys. 

In my opinion, real estate investing comes with a lot of learning moments, but it's best to learn from others’ mistakes so you don’t have to learn the hard way. These are some of the largest mistakes Casey and I think you should avoid: 

1. Asking “Where should I invest?”

Just because a market is on a  “Top 10 Places to Invest” list doesn’t necessarily mean that it’s the best market for you. It’s a big red flag to ask this question because it shows you haven’t evaluated your own needs and strengths as an investor enough.  

Everyone’s investing style is different. There are so many factors that go into choosing a “good” rental market: who you are, your risk tolerance, the amount of time you have available, etc.

2. Not having focus

Real estate investing is a skill and the only way to learn a skill is practice. I see a lot of investors who are serious and willing to do the work, but they lack focus—which is detrimental to their success. 

Looking into three or four different markets simultaneously and bouncing from one idea to the next won’t get you anywhere. There’s such a thing as doing too much research. Many people get stuck at the information-gathering stage, get lost in the amount of noise out there, and don’t actually do anything. 

3. Asking “What market has the highest cash flow?”

Casey says if all you are looking for is Year One cash flow, you will be losing cash flow in the long term. High cash flow markets are usually high-risk markets, she says. A lot of the rental markets that have high cash flow today are going to have the same level of rent for the next five to six years.

While rent stays the same, you will be seeing increases in property taxes, home insurance, home repairs, and maintenance—which means your cash flow is going to dwindle every year. I have seen so many people who have gone broke buying cheap. They think that their cash flow will be very high for the property but it turns out, reality doesn’t match the Excel cash flow spreadsheet. 

You need to find properties that have rent appreciation potential in the long term.

4. Rushing

Some people rush into the market, buying a rental property just to buy a rental property, effectively gambling away hundreds of thousands of dollars. Learning real estate is not difficult if you are willing to put the work in. There’s no reason to willingly take a loss just to “learn.”

5. Picking the wrong tenant

New investors will sometimes select the first tenant that applies out of fear that their property is not garnering enough interest. Remember: having no tenant is better than a bad tenant. 

Every property that is in a decent location and is advertised well enough will rent, so have patience when selecting tenants. 

6. Comparing your Year One to someone else’s Year Ten

In this game, you have to do your time. I get messages from folks asking how they can get to where I am in my investing journey in a fraction of the time. Truth is, there are no shortcuts.

Real estate investing is a journey, accept it and try to enjoy it because if you are doing it the right way, you are going to be in it for a while. 

7. Not doing enough renovation and repair research

All properties need some sort of work. Even if you buy a brand-new build, there’s usually something that needs adjusting. As an investor, you want your property to need some work because you want room for added value. 

New and inexperienced investors often know very little about the scope of their property rehab and usually overpay. They also tend to avoid the grueling—but necessary—work of getting several quotes on renovation projects to ensure you aren’t getting overcharged. 

Put the work in and do your research to find out how much renovations and repair costs will be, both before you buy and while you are shopping around for contractors.

8. Betting on appreciation

Some early investors will say they “can afford negative cash flow.” This is like nails on a chalkboard to me. 

There will be months when your cash flow is in the negative, but to sign up to lose money every month and betting on appreciation for a return is a very poor decision and very risky.

You can’t be certain of what will happen to your market or your property when you eventually decide to cash in. 

Are you a single-family landlord?

You’re welcome to participate in the ResiClub-LendingOne SFR Survey.

Some of the final results will run in this newsletter.

ResiClub Chart of the Week

Last week, Lance Lambert highlighted the results of ResiClub’s recent housing investor survey. Among the findings: 80% of housing investors are concerned about future home insurance premium hikes. 

“According to ResiClub’s reporting, the rise in home insurance premiums is due not only to climate risk but also to housing and construction inflation,” Lance wrote. “Replacement and repair costs have soared, and insurers are trying to keep up, although some state insurance commissions are slowing the process.”

Number of the Week: 60,000

Last weekend, I reached 60,000 subscribers on the One Rental at a Time YouTube channel. Wherever you are in your real estate investing journey, I want to say thank you for being a part of the ORAAT community. 

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