Three Common Mistakes New Investors Make - And How To Avoid Them

By Sheila-Farragher-Gemma

Sheila Farragher-Gemma
Success in real estate investing requires a commitment to keeping emotions out of the picture. Anyone who has plunked down hard-earned savings or leveraged their good credit to fund a real estate investment, however, understands the challenge of staying detached.

When you have a lot to lose, it's difficult to keep your feelings out of the deal. Ironically, it is for this very reason that you need to be unemotional. Three mistakes that many new investors make are:

     
     

  1. Looking at prospective properties as prospective personal residences.

    I recently viewed a property with a friend who was looking to invest. The property was on the fifth floor of a building with no elevator. She immediately decided against investing, even though she would potentially reap a 10% return on her money.

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    When I asked her what turned her off about the deal, she said that she would have a problem with the stairs. She was picturing the place from the perspective of a person living there. Another woman in our group scooped up the property and has been delighted with the return.

    Savvy investors often buy property sight unseen. The only thing they are concerned about is if the deal works in their favor financially. They don't get caught up in the same emotions they may experience when buying a property in which they want to live.

  2. Getting scared off by the prospect of doing work on properties.

    The prospect of work on a house can create another emotional pitfall and scare off a rookie investor. When a property requires reconstruction or significant repairs, these investors often think they need to rehab it to according to their tastes. Thus, emotion enters the picture again and the property becomes a project that looms large and expensive in their minds. But it's often smarter simply to make the property clean, functional and resalable.

    Sophisticated investors view properties as investment vehicles and focus on how they can make money off them. These investors will pay a professional to inspect the property and estimate what, if any, work needs to be done.

  3. Making bad purchases just to get some deals under their belts.

    Newer investors often buy based on a misguided hope that the market will improve or keep improving. There is a well-known saying in real estate that you need to make your profit when you buy, not when you sell. It's true.

    To be successful, you need to analyze the numbers and think about the worst-case scenario. Ask yourself this important question as a litmus test: "If the market were to stay the same or maybe dip a little, would this still be a good deal for me?"

If you are new to the real estate investing world, especially the foreclosure market, it's important to do your homework on properties and analyze all the numbers. You also need to be ready and willing to jump into the market when your research supports that decision.

Some of the basic tools you need to jump into this exciting market include:

The general recipe for success involves doing your homework but also heeding your hunches, and having a strong network of people who can help you before, during and after a deal. Once you've bought a few properties, you'll be better able to recognize a good deal and grab it.

In terms of your investment portfolio, real estate is always a great tool. Just buy with your head and not your heart and you will be successful!

Sheila Farragher-Gemma is a co-founder of ForeclosuresMass.

 

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