Even the most experienced real estate investors make mistakes. And for first-timers, the learning curve can be steep.
While some errors are easy to recover from, others can knock a promising investment off track before it even begins. Here is the number one mistake Americans make when investing in real estate, according to experts.
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The No. 1 Mistake Is Hesitation
It’s common for new investors to second-guess themselves, especially when a deal feels too good to be true. But that pause can sometimes turn into a missed opportunity.
“In my opinion, the biggest mistake I see Americans make when investing in real estate is hesitating to pull the trigger when they find a good deal,” said Brian Rudderow, real estate investor at HBR Colorado. “People tend to overanalyze the deal and get caught up in small details instead of simply running the numbers, seeing the potential profit and then taking action.”
In Rudderow’s opinion, investors often make this mistake because people are naturally risk-averse and don’t want to lose money. Also a successful outcome is never guaranteed.
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There are also financial consequences, both short- and long-term.
“The short-term financial consequences of hesitating to take action are missing the investment opportunity, losing to a competitor and a loss of money,” Rudderow said. “The long-term consequences of hesitating to pull the trigger are loss of net worth over time, building the habit of hesitating to pull the trigger and becoming too conservative.”
To avoid this mistake, Rudderow recommended that investors have a clear strategy and the confidence to act on it.
“Investors should hone their processes to the point where if they see a deal that fits their purchasing formula, then they immediately pull the trigger and invest in the deal instead of overanalyzing and hesitating,” he explained.
Also Avoid Having No Exit Strategy
Having no exit strategy is another big mistake investors make when investing in real estate, according to Andy Heller, investor and author of two real estate books and speaker at Regular Riches.
“As I teach around the country, I see investors commonly purchase properties because they find a ‘deal,’” Heller explained. “However, the investor has not mapped out what they plan to do with that property once purchased and this results in potential loss of anticipated short and long-term profit and potentially even a loss of money.”
When putting together an exit strategy, Heller recommends identifying what you want to do with the property after purchase, the types of properties that fit that exit strategy and then purchasing those specific types of properties.
“Why? Most exit strategies have a typical property that is ideal for that strategy and thus the investor can focus on buying that type of property,” he pointed out.
For example, an investor gets a great deal on a cheap, run-down home in a low-income neighborhood and renovates it, Heller said. The investor uses a lease/purchase strategy, but struggles with unreliable tenants and frequent vacancies. After five years and multiple turnovers, the investor’s expected profits are gone.
The mistake? According to Heller, the lease/purchase model works best with single-family homes in stable, middle-income neighborhoods. The investor’s exit strategy didn’t match the property.
“It might have worked as a flip, a section eight or a wholesale purchase as an example. Not as a lease/purchase,” he explained. “This is an example of a common mistake and I would suggest the biggest mistake an investor makes.”
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This article originally appeared on GOBankingRates.com: I’m a Financial Expert: This Is the No. 1 Real Estate Investment Mistake Americans Make