5 lethal mistakes for real estate investors

Once the market starts to rebound, investing in real property also becomes a more appealing idea — either as a career or a great side job. Like any other endeavor, though, there’s a right way and a wrong way to go about it.

IconSolution.eu spoke with established, full-time real estate investors and with professionals, such as bankers, to identify the types of traps into which real estate investors most often fall.

1. Planning as you go. Andy Heller, an Atlanta-based investor and co-author of “Buy Even Lower: The Regular People’s Guide to Real Estate Riches,” says lack of a plan is the biggest mistake he sees new investors make. They buy a house because they think they got a good deal and then try to figure out what to do with it. That’s working backward, Heller says. “First, you find the plan,” he says. “Then you find the house to fit the plan. Pick your investment model, and then go find property to match that. Don’t find the strategy after you find the home.”

The problem is that most people look at real estate as a transaction instead of as an investment strategy, says Doug Crowe, a Chicago-based real estate investor and speaker. “People fall in love with a property,” says Crowe, who is managing director of Springboard Academy, the nation’s only real estate academy for investors. “I say, ‘Who cares about the property?’ I fall in love with a motivated seller.”

The number is the number, and you don’t go above that, he says. The best way to solve the problem is to have lots of activity and make offers on multiple properties. Then you don’t care which one you get — as long as the numbers work out in your favor.

2. Thinking you’ll “get rich quick.”That kind of wrong-headed thinking is fueled by “these self-appointed gurus who have infomercials and make it sound so easy to get rich in real estate,” says Eric Tyson, co-author of “Real Estate Investing for Dummies.” It’s not easy. It’s a good long-term investment, but so is putting your money in a mutual fund, which is a lot easier. “These gurus don’t talk about all that hard work. You have to be smart, you have to be willing to work, and you have to understand your risk tolerance.”

3. Playing Lone Ranger.A key to success is building the right team of professionals. At the very least, you need good relationships with at least one real estate agent, an appraiser, a home inspector, a closing attorney and a lender, both for your own deals and to assist with financing for prospective buyers.

In the remodeling and maintenance segment of the business, the team includes a plumber, an electrician, a roofer, a painter, a heating and air conditioning, or HVAC, contractor, a flooring installer, a lawn maintenance service, a cleaning service and an all-around handyman. You can’t build a business as an investor if you’re spending all your time fixing leaky faucets and putting up ceiling fans.

4. Paying too much.Heller says the biggest reason investors don’t make money is simple: They pay too much for the properties. “The profit is locked in immediately once the investor buys the property,” he says. “Due to mistakes in the analysis, the investor pays too much and then is surprised later when he doesn’t make any money.

5. Skipping homework.You wouldn’t think you’re qualified to perform open-heart surgery without years of education and training. Yet many wannabe real estate investors don’t think twice about taking their financial lives in their hands without even cracking a book. Educate yourself before you put your family’s financial security on the line. Read articles, check out books from the library and look for a local chapter of the National Real Estate Investors Association. Speakers at monthly meetings cover everything from buying foreclosures to screening tenants.

If you can’t find a local chapter, find out who owns a lot of rental properties in the area, call him up and offer to pay for an hour or two of his time to find out whether this is a good career for you.