While there are a lot of mistakes you can make with real estate investments, identifying some of the common mistakes ahead of time can save you a lot of time and money. The worst mistakes can involve not starting with the right frame of mind, to not optimally managing your cash and equity. See the following article from JasonHartman.com for more on this.
Most investor mistakes stem from “self-sabotaging behavior” so the goal is to recognize and overcome this behavior. The right frame of mind is essential for success in real estate. Instead of a gambler’s mindset, typical of speculators and property flippers chasing after instant gratification, adopt a buy and hold approach – the source of genuine wealth creation. Experiencing great luck on your first try can actually be detrimental since luck is inherently unreliable and a poor preparation for reality. Adversity is a better teacher.
Here is a brief run-down of the worst mistakes committed by real estate investors and how to counter-act them:
The paralysis that results from fear plays a major part when investors put off getting started. Preparation and education followed by implementation is the best antidote. “Don’t wait to buy real estate; buy real estate then wait” is how Jason puts it.
Failing to ask for help
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While individual real estate investors won’t get to share in big federal bail-outs, on a smaller scale they may qualify for loan modification or other forms of assistance. But you have to ask first. Although it may seem a contradiction, Jason advises, “The person in power in a transaction is the borrower.”
Failing to have prudent faith in yourself and others
This attitude only lays the foundation for failure. The antidote is not blind trust but well-placed, informed faith balanced with healthy cynicism. On the same note, failing to think positively is another fatal mistake. Jason relates how early on he was influenced by Zig Ziglar’s “See You At The Top”, a ringing endorsement of the power of positive thinking.
Failing to use prudent financial planning
By assessing your tolerance to risk and establishing a time-frame for your goal it is possible to conquer the inertia that prevents progress and capitalize on momentum along with factors like time, inflation, and even government excess. Identify your objective, then practice “reverse engineering” to devise a course of action that will help you reach it.
Failing to diversify
The mistake is putting all your investments in a single market, vulnerable to changing circumstances. Broaden your horizons geographically. Instead of a backyard investor, Jason advocates being “area agnostic”, resisting marriage to any one market, regardless of how well it has served you.
Having too much equity in property
Because real estate, unlike stock investment, doesn’t offer the ease of quickly cashing out, the minimum required equity or down payment is optimal. Another paradox of investing according to Hartman is that greater leverage or debt is actually less risky, as long as you keep sufficient accessible reserves.
Choosing exotic investments instead of focusing on primary needs
In terms of real estate, this means concentrating on the housing market.
Failing to recognize the impact of taxes
Be mindful that real estate offers the best shelter as the top “tax-favored asset”.
Failing to “Embrace the Fragmentation”
Recognize the unique investment opportunity that residential real estate offers since this fragmented market is insulated from “institutionalizing” and still represents the best wealth creation tool for ordinary folk.
This article is based on Episode 162 of Jason Hartman’s Creating Wealth Show. You can listen to the full podcast at JasonHartman.com, a real estate investment and wealth creation site.