Running a business—any kind of business—is difficult. Many businesses fail within their first year or two. It’s no different with real estate investment businesses. There are certain types of issues that you will need to address and problems that you need to sidestep if you want to be successful.
If you are only buying one property to use as a rental, the chance of failure tends to be much lower. However, this would mean that you are more of a hobbyist investor than someone who is running a true real estate investment business with multiple properties. Keep in mind that it is possible to fail even if you have just one property. Below are some of the biggest reasons investors have problems.
Reason 1: You Use Emotion When Investing
This is a major problem when it comes to real estate investment properties. The investor finds a property they fall in love with and they want to buy it, believing that it will be a good investment. However, if you aren’t looking at the numbers, this could end up causing some problems.
For example, you might choose a property because it looks nice or because you think it’s a good deal rather than looking at what it can do for your business. Will the property be easy to rent? Will you be able to get enough in rent for the property?
You might also find that you end up spending too much on the property if you have an emotional attachment. If someone bids against you on the property when trying to buy it, you might end up spending more on the property than you should have. Now, it will take even longer for that property to earn out for you.
Reason 2: They Try to Do Everything on Their Own
The next reason real estate investors often fail is because they fail to get the help they need with their investment. Instead, they try to do everything alone. This often leads to complications.
Consider all there is to do with the investment. You first have to find properties, buy them and potentially fix them up, market the properties, find the right tenants, maintain the property, deal with tenants, and so much more. It can quickly become overwhelming even if you have just one investment. When you have multiple, it can be a nightmare.
You need to have a quality team working with you. This means you’ll need real estate agents that can help you find the right properties, contractors for those properties that need updating, help with marketing and showing the property to tenants, collecting rent, and more.
Often, investors feel that they can cut their costs down when they simply do it all on their own. While it’s possible to handle some of these tasks yourself, you’ll find that it’s often smarter and more cost-effective to have people that you can bring in at different steps. They don’t need to be full-time employees, of course. Simply have good working relationships with agents, contractors, photographers, marketers, etc. for when you need them to do a job.
Reason 3: Underestimating the Costs
Financial troubles hamper many investors. They buy a property without fully understanding how much it will cost them. Even when they get a good deal on an investment home, they may not realize what the repairs will cost or how much it will cost to maintain and market the home.
Real estate investors, no matter the size of their business, must take the time to understand all of the costs that will go into the purchase of the property, getting the property ready, marketing it, and maintaining it for the long haul.
Keep in mind that it’s always better to err on the side of caution when it comes to cost estimates for the business and your properties.
Reason 4: Not Being Able to Keep Tenants
As a real estate investor, if you want to make steady money, you need to have tenants. This is true for residential properties and commercial properties you are leasing. If you aren’t able to keep tenants happy, they will move to a different property. This means you’ll be spending months without the property producing income, and you will have to continue marketing the property to bring in new tenants.
Unless you hire a property management company, part of the job of being a real estate investor will be handling landlord tasks.
Reason 5: Not Treating Real Estate Investment as a Business
If you want to have a successful real estate business, you need to treat it like an actual business rather than just a hobby. You need to learn how to manage your time and resources well. Approach everything from the standpoint of a businessperson rather than someone who just wants to get an investment property. Learn how to make it work for you.
You have to put in the effort to learn how to operate the business side of things, not just making the investments. You also have to realize that success doesn’t come overnight. It takes time and you need to persevere if you hope to see results. Know the fundamentals, know how to invest in the right properties in the best locations, and get help with anything that you can’t do on your own.
Find Your Success in Real Estate
These are just some of the top reasons that many real estate investors end up failing today. There are other potential pitfalls, as well. However, by taking the time to learn more about how to properly invest, how to handle tenants, and how to run the business, it can increase your chance of success.
If you want to do well as a real estate investor, you don’t want to make the common types of mistakes discussed above. You should also strive to continue learning and educating yourself on the business. The more you know and learn the better you will do, just like in any other endeavor.