It’s probably fair to say that every successful investor has made mistakes along the way. After all, mistakes are often the best teachers. But that doesn’t mean we can’t also learn from others’ missteps. Here are six tips all new investors should know to maximize their success as they get started.
1. Numbers, Numbers, Numbers
One of the most difficult shifts in perspective is in looking at potential investment properties in terms of the numbers, and not in terms of emotional attachment or other non-quantifiable criteria. When we look for houses we intend to live in, we look at price point and location, but we also tend to form an emotional attachment to it before we buy it. Mistakes happen when we do the same with investment properties. Remember, you aren’t buying this for you. You are buying it to turn a profit. The first rule of thumb, then, is to let the numbers guide you. Do your research. Look at comps. Get estimates on the needed repair work, allowing for cost overruns. Consider location, list price, days on the market, and who your likely buyer will be. Are you in a college town? Near a major business hub or a busy downtown, or in the suburbs? Questions like these will help determine the resale value.
2. Rejection is Normal
The world of investment properties is like a roller coaster. Ups and downs are the name of the game, and you will hear “no” more often than “yes.” Not every offer will go through. Not every property will yield a big profit. Repairs will sometimes cost more than you expect. Mistakes happen when investors get too caught up in the deals that don’t work out. The key is to stay positive and develop a thick skin, so you can keep moving forward.
3. Know When to Walk Away
Sometimes you need to be the one doing the rejecting. Getting back to the numbers, let those numbers clue you into a potentially bad deal before it is too late. Plenty of properties may be great for one investor and not for another. Remain focused on your goals and trust your research—and your gut—when signs are pointing toward the door rather than the dotted line.
4. Variable Income
When you are a property investor full-time, you are no longer drawing a steady paycheck. Payments come in lump sums once deals close. Avoid the temptation to spend that money too quickly, without planning for your living expenses, tax liabilities, and so on. Getting a check for $30,000 at closing is great, but if you don’t have another deal close for six months, that $30,000 is not going to go nearly as far as you think. Do not make the mistake of failing to plan for the lean times.
5. Life Is Not a TV Show
There is no shortage of television programming focused on the glamorous life of house-flipping and property investing. While many of these shows are both informative and entertaining, as the viewer it is easy to forget that home renovations take far longer than what appears on the show. While there is a great amount of potential profit to be made in rehabbing properties, it is never a guarantee.
6. Never Stop Learning
This industry is ever-changing. Those who are successful in it are the ones who stay informed. Networking, following industry blogs and social media, attending lectures and courses, and even working alongside more experienced investors are all great ways to stay on top of changes that impact how you run your business.