The 15 Biggest Mistakes I've Made As a Real Estate Investor

No one wants to get burned in a real estate investment. The whole point of investing is to grow your money, not lose it. But mistakes happen. Over my 10 years as an investor, I've made seemingly countless mistakes.

Rather than dwell on my errors, I've chosen to learn from them. Hopefully, by sharing some, you can avoid following in my footsteps. Here are the 15 biggest mistakes I've made as a real estate investor.

5 Stocks Under $49

Presented by Motley Fool Stock Advisor

We hear it over and over from investors, "I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of "5 Growth Stocks Under $49" for FREE for a limited time only.

I was almost cut out of my first real estate wholesale deal. The potential buyer of the deal decided my poorly written non-circumvention agreement wasn't valid and tried to buy the deal directly from the seller, cutting me -- and my fee -- out of the equation.

Thankfully, the seller wouldn't have it and cut the buyer out of the equation, but it really taught me a valuable lesson: The quality of your contracts matters!

If you're going to invest, have well-written contracts drafted by a local lawyer and include all the required disclosures for investing or buying real estate in your state. Paying an attorney for this is an upfront investment, but it will pay you back tenfold.

ALSO READ: 10 Things to Do Before Signing a Purchase Agreement

It's easy to get excited about the prospect of a deal and overestimate the potential after repair value (ARV) of a property or the cash flow it can bring in as a rental. I'm surely guilty of that. But you must be realistic about what the market and property can allow.

Use actual rental rates, realistic repair estimates, and real comps to drive your numbers -- and never pay more than the investment is worth!

Don't rely on appreciation as a part of your equation, no matter how fast homes or rents are growing. In hot markets like the one we're in right now, this can be tough because it means you might miss out on a good deal due to being too conservative. But if the market goes south or slows for any reason, you'll be grateful you didn't overinflate your numbers and get yourself into a bad deal.

It's easy to underestimate an investment's potential. There are countless deals in which I just didn't see how the numbers could work as I evaluated them, only to see later that the property turned out far better than I had predicted.

Mastering the art of running numbers takes practice. But the more you do, and the more you check how your estimations compare to actual results, the better you can refine this and, hopefully, miss fewer deals due to coming in too low.

ALSO READ: 3 Mistakes You Might Make If You're New To House Flipping

As you grow as an investor and acquire more properties, it can be incredibly easy to put yourself at risk of being over-leveraged, where your debts owed exceed the assets owned or income generated.

It's good advice to keep your debt to assets below 80%, but the lower, the better. This means you're not at risk of losing a property in the event of a pullback or wouldn't be the one paying the bills if a rental goes south.

Even with referrals and the best vetting questions, it can be difficult to determine who can be a trusted team member.

I once had a Realtor refer a contractor to me who later took my money and ran halfway through the renovation. I've had contractors who did terrible jobs on their work, clearly because they weren't as skilled as they claimed, and had property managers who, frankly, sucked at their job.

Diving deeper by looking at reviews on the internet or potential claims through the Better Business Bureau or by checking the local county's clerk's office to see whether suits or claims have been filed could have saved me a lot of money and headaches along the way.

5 Stocks Under $49

Presented by Motley Fool Stock Advisor

We hear it over and over from investors, "I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of "5 Growth Stocks Under $49" for FREE for a limited time only.

As an investor, it is crucial to choose the right members for your team, including handypersons, contractors, Realtors, property managers, attorneys, accountants, and beyond. Don't just assume that because they are in the business and popped up on Google or were referred to you, they know what they are doing.

Have specific questions pertaining to their service to make sure they are competent and will deliver like they say they will. I've gotten burned one too many times by hiring someone who ended up being terrible at their job.

ALSO READ: Meet the New Real Estate Unicorn

The property's location plays an immense role in an investment's success. If you plan to invest in areas outside your local market, it's imperative that you research the market extensively. At one point, at the beginning of my investment career, I ended up purchasing close to 25 investments in one year, with assets located all over the country.

Most turned out great, but I didn't research the neighborhoods well enough on a few, and they turned out to be total nightmares. Do your homework, and if you're not confident about it, speak to a qualified and experienced local Realtor.

It may seem like you're saving some money by prolonging property repairs, but keeping your properties in safe, livable, and even up-to-date condition can lead to much bigger payoffs.

Aside from not having to worry about unexpected repairs due to an old appliance or outdated major operating system, like the plumbing or air conditioning, failing on the tenant (not fun), you have a more attractive property to offer tenants.

And that means it's more likely you can charge higher rents. Don't wait until something fails to fix it. Instead, make careful but important improvements each year.

ALSO READ: 5 Mistakes Every New Landlord Makes

Your negotiation skills are largely what determines your success as an investor. Other factors -- like having the right team in place to get the job done efficiently and effectively alongside managing costs and tenants -- will certainly help; however, you'll be hard-pressed to secure deals without strong negotiation skills.

Take the time to practice the art of negotiation. There are lots of books, videos, and courses on this topic, and if you put what you learn into practice, you should see a noticeable improvement in the number of deals closed.

In 2019, I attempted to branch into commercial real estate, buying my first self-storage facility. Being self-employed can already make financing difficult, but being that it was my first time getting a large loan from a commercial bank, I ran into setback after setback when it came to funding.

Because I wasn't "bank ready," the sellers backed out of the deal and sold it to someone else. I lost hundreds of thousands of dollars of profit from this, not to mention a lot of cash flow along the way.

Commercial loans differ greatly from residential, so if you're going to use traditional financing methods to fund your deals, do your research on the process and what is required of you to be "bank ready." This is by far the hardest lesson I've learned.

5 Stocks Under $49

Presented by Motley Fool Stock Advisor

We hear it over and over from investors, "I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of "5 Growth Stocks Under $49" for FREE for a limited time only.

Thankfully, I got started in real estate investing in my early 20's, a lot sooner than most. But as I started to learn about the different avenues of investing, I didn't always take action. I missed out on so many great investment opportunities because I felt I wasn't ready, worried about what could happen, or simply failed to take action.

It's important to learn the business before you invest in understanding the risks and responsibilities that go into owning and managing an investment property -- but don't put off investing. I promise you'll always wish you had started sooner.

ALSO READ: How to Invest in Real Estate: A Complete Guide

When I first started learning how to invest in real estate, I got excited about all the prospects of investing. Instead of focusing on one strategy at a time and mastering it, I tried each for a bit and, when I had no success, allowed myself to move on to the next.

Persistence and patience pay off in this business. Don't let other shiny new "investment opportunities" take you away from what you're focused on.

I use direct mail as a part of my marketing strategy to find off-market sellers. This can be a very valuable tool in sourcing inventory as long as you're tracking your results and adjusting accordingly.

In my first few mail campaigns, I didn't track my results carefully, which meant I couldn't see what was (or wasn't) working from my marketing efforts. If you plan to use a marketing tool to help drive business, make sure you have a system for reviewing and refining it to maximize your results.

ALSO READ: Do Cold Calling and Direct Mail Actually Work?

There's only so much time in a day. With other commitments like work, families, and leisure time, you'll quickly run out of time to complete the necessary tasks in your investment business.

Outsourcing tasks -- like property management, repairs, direct mail marketing, and other aspects of your business -- can free up your precious time to help you grow your business further. I waited four years before hiring my first assistant, which was far too long.

The saying "cash flow is king" exists for a reason. Cash flow is what creates financial freedom and long-term wealth. And it can only be achieved by investing in passive income vehicles like rental properties, performing mortgages, or even real estate investment trusts (REITs).

I spent the first five years of my career focused on active income, and now I'm still stuck working for my next payday. While active investments can be a great way to build capital, focus on having both as you invest.

5 Stocks Under $49

Presented by Motley Fool Stock Advisor

We hear it over and over from investors, "I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of "5 Growth Stocks Under $49" for FREE for a limited time only.

Even with the many mistakes I've made, I am in a much better financial position because of my efforts. Don't wait to start investing just because something could go wrong. Mistakes happen, and even when you learn from a mistake, there might be another one you'll make along the way.

Hopefully, by listening to the advice of others and learning from their mistakes, you won't make the same ones in your real estate investing career.

The Motley Fool has a disclosure policy.