9 Avoidable Mistakes Made By Canadian Real Estate Investors:
Novice Canadian Real Estate investors often make the same preventable mistake.Â I created this list to help them realize what these common mistakes are and how to avoid them.
The good news is that all of these mistakes can be easily corrected.
The bad news is that any one of these mistakes will seriously limit your potential for success. In my experience, these are the 9 most common mistakes I see novice real estate investors make:
As with any career, education is the key to success, and the same applies to real estate. Education saves a lot of money by preventing mistakes you could make in the real world before they happen. We are lucky to live in a country full of educational opportunities for whichever endeavor we want to pursue.
Surprisingly not everyone has an education in real estate, so getting one gives you an edge over the competition. Â This exposes these people to costly (and sometimes career-ending) mistakes that could have easily been avoided. Some misguided people even complain that the books, courses, or seminars promoted by Â Canadian real estate experts are too expensive. I guess that depends on where you stand.
To me, they seem cheap compared to what I know can be earned in this business. Perhaps to a novice though, they may seem expensive. But as the saying goes, “If you think education is expensive, try ignorance.”Â Think about it.
If you paid $5000 for an apprenticeship and saved that much on a single deal, is it worth it? What if it could save you a mere $5,000 on a single rehab? Or what if it helped you to create an extra $200 per month cash flow on a single property for just one year? Would it be worth it to you? The value of an education often doesn’t reveal itself until you’ve stepped up to the plate and put yourself in the game.
2) Not getting an education from the right peopleÂ
The internet is a great tool. But it also contains bad tips, information and leads from less credible sources. So don’t confuse the information you find on the internet as necessarily being quality information. For example, there are a number of Canadian real estate investing newsgroups and blogs that have proliferated on the internet.
Many so called experts on these sites are more than willing to share enough information to get you into trouble.
I can’t believe some of the misinformation I’ve seen posted on these sites. Remember, anyone can post on a newsgroup and anyone can create a blog. But just because someone has a blog, doesn’t mean they necessarily know what they’re talking about. The misinformation you get may be costlyÂ in either lost profits or reputation.
Novice investors may also get misinformation from friends or family members. Perhaps they dabbled in real estate at one point. Now they feel entitled to tell you what little they may know about real estate investing. Be extremely wary of people who have “dabbled”Â in anything. Dabblers are rarely experts in anything. As the saying goes, “Jack of all trades, master of nothing.”
3) Not taking action
If you’ve managed to get a good education from a good source, the next step is to take some action. Knowledge will be power only when you begin to apply it properly. Merely buying a wide array of real estate investing products or attending boot camps isn’t going to make you any money.
Some novices neglect to take action because they are still searching for that magical secret that is going to make it start raining deals. The real secret is hard work! Others are paralyzed by fear of what might happen if they get one of their offers accepted. Or, they may give up making offers if they don’t experience instant success.
What ever the reason, the only shot you are going to miss, is the shot that you never took in the first place. Personally, I believe that initial failure is the universe’s way of forcing us to make sure we truly want what we are pursuing. In the end, persistence is what leads to success. And the more we persist, the closer we get to success.
Many novices regularly attend their local real estate clubs. Clubs and associations are excellent way to network with other like-minded people, learn techniques and strategies, and have fun.
Unfortunately, I’ve met countless club goers who have never done a deal before. Instead of using the club as a spring board into taking action, they tend to use the club as a warm blanket because they fear being out on their own. When I meet these people, my advice to them is to stop sitting around with the other novices talking about all the deals they would like to be doing.
My advice is simple, go out there and get some deals done. We all need a good apprenticeship. But that is only one step in the process. There is no substitute for hard work.
4) Not having realistic expectationsÂ
Most novice Canadian real estate investors have unrealistic expectations. It may be about the amount of repairs a property needs, the time it takes to complete a project, or the profit they should get from a deal. They are expectations are either too high or too low. If they are wholesaling properties, they may get too greedy and try to charge the rehabber too much.
If they are rehabbing properties, they may underestimate the repairs required.
If they are landlording, they may underestimate the amount of maintenance a property will require or forget to factor in vacancies. While getting an education or being apprentice Â plays a large role in these mistakes, another reason is that they did not leave enough room for error. They assumed everything would go as planned.
Real estate deals rarely go exactly as planned. Experienced investors understand the importance of planning for the unexpected. This way, when things don’t go as planned it’s not the end of the world.
Contrary to popular belief, real estate investing is not like the stock market. It is not a passive investment. It is an active investment. Whether a novice investor’s intentions are to flip or to own rentals, they sometimes think owning real estate is going to be a lot easier than it is.
While the profit potential in real estate is usually much greater than owning a stock, it inherently requires more effort than most passive types of investments. Whether you are wholesaling, rehabbing, or landlording, real estate requires your time and constant attention. In this way, it’s more like a business than an investment.
For example, you must be disciplined about your business. You need to set a schedule for yourself and stick to it. You need to set policies and procedures and adhere to them. You need to set goals and do whatever you can to achieve them. Not everyone has that level of discipline without a boss telling them what to do. When you run your own business, you are the boss. You must be willing to make sacrifices to succeed.
For you this might mean that you need to turn off the television and read your home-study courses. It might mean that instead of spending money on new clothes, you invest that money in your business.
Or it might mean that instead of going to the park on Saturday you search the MLS and forum at Professional Real Estate Investors Group (PREIG) CanadaÂ look at properties, and familiarize yourself with your target neighborhoods.
6) Not being patient
It can take awhile for novice investors to see positive results when starting out. You can’t expect to immediately find deals and make money. It may take several months to get your first deal. As a comparison, new real estate agents are often told by their brokers that it may take up to six months to close their first transaction.
Similarly, real estate investors should expect to wait a few months to close their first transaction. Furthermore, it can take years for your real estate investing business to become a thriving venture. There aren’t too many businesses that become profitable immediately -Â no matter the type of business.
It often takes several years for most businesses to get to a point where they make steady and reliable profits. Running your own business can be fun and extremely rewarding. But rest assured, the early years can be unpredictable. As a result, you need to have a lot of patience for things to take off.
7) Not concentrating on quality deals
This is one of the biggest mistakes I see novice investors make, especially after they have done a few deals. After they have some success, they begin to focus too much on quantity instead of doing quality deals. This mindset leads them to do less profitable deals. And once an investor begins to do thinner deals for the sake of doing more deals and outdoing their competition, they eventually find themselves in trouble.
Unfortunately, this is a lesson that most investors learn the hard way. For some reason, avoiding the temptation to focus on quantity is a principle that most investors have a hard time accepting. Their natural inclination is to do more. They might feel the pressure to tell their friends what new project they are working on. They might feel bored unless they are working on something new. Or they might feel guilty about not “staying busy.”
Whatever the reason, novices must learn that investing is an activity in which “staying busy”Â is not always smart. Sometimes, the best deals are the ones you don’t do.
When an investor learns to concentrate on a small number of quality deals, they enjoy not only better profits, but also a better lifestyle since they’re not running around managing a huge portfolio of properties. For most people, the whole point of getting into real estate investing in the first place is to live a better quality of life, not to work longer and harder.
8) Â Not moving on from bad deals fast enough
Since novice real investors usually don’t have a steady stream of leads coming in and don’t know what a truly profitable deal looks like, they tend to overanalyze bad deals far too long. They get anxious and want to get deals done. And even when they put the numbers of the deal into their spreadsheet and see the deal clearly doesn’t work, they still find a reason to justify it.
They logically know that a deal should be avoided, but they try to justify it anyway. While I believe everyone needs to start somewhere, the ideal place for a novice real estate investor to start is in a good deal not a bad one.
What novices eventually learn is that not too long after taking on a marginal deal, a great deal is not far behind. But because they’ve tied up their resources with the marginal deal, they can’t pursue the great deal.
Don’t try to run your business without a clear plan. Clarify your goals by committing them to writing. Then, revisit them once a week until they become reality. Something magical happens when you write down your goals on paper.
They begin to take root. When you focus on them repeatedly, you nurture them and they begin to grow. It’s important to write down your purpose, strategies, and goals. Begin by asking yourself the following questions:
- What strategy am I pursuing?
- What will I do with the properties I will buy?
- How many deals per year will I do?
- How much profit will I earn per deal?
- How many offers do I make to make this happen?
- What kind of life do I want to live outside of the office?
- When you are clear about your goals, you have a much easier time accomplishing them. And if your goals are unrealistic you should change them as necessary. Don’t get stuck in an unrealistic set of goals that will only produce frustration. At the same time, you shouldn’t change your goals too often either.
It’s hard to hit a moving target. You want to strike a good balance between having reasonable, achievable goals and also setting goals that will force you to get outside your comfort zone.
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