When it comes to being successful in real estate investment, there are a lot of factors at play. Investors who find real success in real estate — and have the bank account to prove it — are the ones who know how to play the game (and play it well). They’re the ones who are experts on their market and have negotiating skills so amazing, they could sell ice to an Eskimo. They’re the ones that know how to take care of their tenants and have a stellar team on standby to step in if something on one of their properties breaks or needs improving. Basically, the most successful real estate investors are the ones who have it all together.
On the flip side of that coin, because there are so many things that go into real estate investment success, there are also a lot of opportunities to fail.
Here are the top 5 reasons real estate investors fail — and how to avoid them:
They Try to Do Everything Themselves (Or Hire the Wrong People to Do It for Them)
There’s no way around it — there’s a lot to be done when you own property. You’ll have issues with tenants. You’ll need to collect the rent. There will be repairs both small (like a broken refrigerator) and big (like a hole in the roof) that someone needs to take care of. There is maintenance, phone calls, taxes, and about a million other things to be done for every property you own.
One of the big reasons that many investors fail is they a) think they can handle everything themselves or b) hire the wrong people to handle things for them. Investors who try to manage tenants, maintenance, property management, and everything else involved with their properties by themselves quickly find themselves overwhelmed and burnt out. And investors that hire the wrong team — whether they’re unreliable, unqualified, or too expensive — pay too much money for services that won’t keep their tenants happy or their properties in working order.
Successful real estate investors know one of the major keys to success is working with a team of dependable, talented, and affordable contractors. If you’re on the hunt for a team, ask other investors you trust for referrals. Read online reviews before making a decision. Hire contractors for small projects to test their work before bringing them on for larger projects.
They Underestimate Repairs
When an investor spots a deal, it’s easy to get caught up in the “bargain” mentality. But underestimating repairs on that “bargain” property can add tens — even hundreds — of thousands of dollars to your buying price, taking the property from “bargain” to “money drain”.
Properties are typically priced low for a reason. Investors that buy before assessing the damage on the house and the repairs that will need to be done before it can be rented, can end up blowing their budget and losing out on profits.
Before you purchase a property, have an inspection done and get an estimate on the repairs. That way, you’ll know going in how much you can expect to pay for getting the property in better shape and be able to factor that into your overall budget.
They Can’t Keep Their Tenants
The perfect situation for any real estate investor is to rent their properties to responsible, reliable tenants who will take care of the unit as if it was their own home and stay for years at a time. One of the most challenging experiences that investors face — and one of the major reasons they fail — is being unable to keep tenants in their units.
Now, tenant retention issues can happen for several reasons. If you’re not taking care of your properties, and not addressing tenant complaints and requests as they come up, you will have trouble keeping your tenants. You could also find yourself dealing with evictions or people skipping out on rent if you don’t have a thorough tenant screening process in place.
If you want to have high tenant retention, the first step is to screen your tenants properly. Run a background and credit check, and only rent to tenants who show they can both afford the property and consistently pay their rent on time. Then, once you have great tenants renting your property, take care of them. Keep all your units in working order, do regular maintenance checks, and address any tenant issues promptly.
They Are Bad at Time Management
One of the quickest ways to fail as a real estate investor is not managing your time well. If you’re giving too much of your time to one property, another will fall into disrepair. If you’re spending too much time looking for new properties, you won’t have enough time to maintain the ones you already own. Poor time management is a fast track to failure as an investor.
But fortunately, time management skills are easy to learn. If you struggle with time management, keep a log of how you spend your time for one week (with a pen and paper or by using a time-tracking app like TimeDoctor). That will give you a starting point for improvement, help you identify time wasters, and allow you to visualize where there are opportunities for improvement.
They Lose Their Student Mentality
Real estate investment is always changing. Hence, the people who succeed are the ones who are constantly learning and investing in their ongoing education. The ones who fail? They never invested in education in the first place or, if they did, decided that they knew everything there was to know about successful investing and stopped learning.
If you want to be a successful real estate investor, you need to maintain a student mentality. There are always new things to learn, new strategies to implement, and new ways to increase your revenue. Always approach investing as a novice and never buy into the belief you’re done learning. By continually seeking new information and approaching investing like a student, you’ll continue to grow and learn, which will increase your success as an investor.
If you want to be a successful real estate investor, don’t fall into these five traps.