It’s not difficult to make a financial mistake. We’ve all made them at some point in our lives—whether our young, naive selves took out one too many credit cards or we got over our heads in a bad loan or investment, mistakes just happen. For the most part, these errors aren’t too devastating. We may be left paying for them for a few years as we pay our debts or wrestle with bad credit, but by and large, most financial pitfalls are temporary.
What’s more dangerous are the financial mistakes that we don’t see as mistakes. For the average American, there is a lot of financial advice, be it old, outdated, or simply bad, that leads to a lot of errors. At the end of the day, it ends with insufficient retirements and less and less financial freedom and flexibility. As a result, so many people are just not fulfilling their financial potential.
Most real estate investors know the error of these antiquated methods. Instead, they’ve updated their tactics to not only compensate for the new challenges in today’s job market (such as decreasing retirement funds, problems with 401ks, and more) but to build up their wealth.
These are four common financial mistakes that real estate investors just don’t make.
4 Common Financial Mistakes Real Estate Investor Avoid
Relying on Appreciation of One’s Home
The American dream has long hinged on homeownership. It’s been part of the deal for a long, long time. There’s a sense of pride and completion that comes with owning your own home and we can’t knock the achievement. However, one of the big selling points that people point to when convincing would-be homebuyers to take the plunge is appreciation.
Too often families are convinced to buy a home in the hopes that their house is somehow this great personal investment that, one day, it’s going to pay off in great and wonderful returns thanks to the power of appreciation.
We know that this isn’t true—just look at any recession or market crash! Relying on appreciation is always unreliable. Not only that, but the home you live in—regardless of the value when you bought it or any projections for the future—is going to be very lived in. That takes a toll on the property and its value. And unlike an investment property that has the advantage of diligent management and a maintenance crew, a homeowner only has themselves. That can make renovations and repairs when it’s time to capitalize on appreciation very costly.
Stockpiling Cash but Ignoring Cashflow
One of the biggest mistakes your Average Joe makes is simply ignoring the value of creating streams of cash flow. Your average individual will tend to focus only on saving money versus making their money work for them. They may enjoy interest that those savings gain, but it’s never enough to make a real difference in their financial lives.
Instead, it’s far better to pursue cashflow. Real estate investors know this. They know that cashflow combined with appreciation is a winning combination. They know that cashflow sustains a retirement, frees up their time, and creates opportunities that didn’t exist before.
Chasing Investments with Minimal Returns
In any investment, there is a constant balance between risk and reward. Every individual has a different threshold for how much risk they’re willing to take. For the most part, the average person doesn’t take on much risk and, as a result, they don’t see much out of their investments. They do one of two things: chase investment opportunities without a toehold on reality (claims of high returns and little-to-no risk, which are often scams), or they stay in the stock market and in large, uncontrollable investments where their money is left in the hands of other brokers who may give them a meager payout if the investment swings in their favor.
Real estate investment, on the other hand, leaves control in the hands of the investor. You have more flexibility not only to manage your risk, but to determine what your money goes to, when it goes to it, and what strategies you employ. You’re at the helm and you get to see steady, growing returns.
Not Doing More to Pursue Financial Freedom
Ultimately, the biggest financial mistake that the average American makes is simply not doing more to pursue financial freedom. We convince ourselves that we’re stuck where we are. We tell ourselves that our savings have to be enough. The pension will cover it, the 401k is all there is. We wring our hands, worry, and don’t look at all of the options on the table. It might be because we’re afraid or because we just don’t know what is actually out there waiting for us.
Don’t make that same mistake.
Financial freedom isn’t out of your range. You can obtain it, whether you’re a bright-eyed 20-something with a fresh degree and struggling with student debt or a 40-something well into your career and thinking forward to your retirement.
There’s more for you. Real estate investment offers a wealth of opportunities that allow you to direct your own finances, build wealth, and find the freedom to secure the future you want for yourself.
Even if real estate investors avoid these mistakes, there are plenty of other pitfalls to avoid. Don't make these errors when investing in real estate!