No one said investing would be easy. Any ace investor will recount the mistakes they’ve made on their way to financial freedom. When it comes to real estate investing — particularly passive investing — we often underestimate the risks and potential pitfalls in front of us.
Thankfully, because so many investors have made these mistakes and come out on the other side, we not only know we can overcome these errors, but we can avoid them altogether thanks to the wisdom of those who have been there, done that.
For our part, we’ve been in-tune with the real estate market and the world of real estate investment for over fifteen years. We’ve seen just about everything in this business: so let us give our would-be and beginner investors some critical advice!
5 Major Mistakes Passive Real Estate Investors Make
Rushing Into a Deal
There’s a balance to be struck when making any kind of investment. While you don’t want to leave it too late (and we’ll talk about that), rushing into a deal is also unwise. There should be a healthy level of urgency (motivation might be the better term!) when investing in real estate. After all, opportunities don’t last.
It would be a mistake, however, to rush into any deal or partnership without doing your due diligence. And this truly is the key — due diligence. No matter what kind of investment you pursue, you should carefully assess numbers, risk, partners, variables, and potential outcomes.
Be sure to check out: What Does Due Diligence Really Look Like for Passive Investors?
If you rush into a deal with due diligence, you effectively enhance your risk because you’ve left yourself exposed to risks that could have been easily managed.
Investing Where You Know
We have a tendency to favor the familiar. This is also true in real estate investment. However, sticking to what you know — namely, the markets that you know — is not always the best solution for real estate investors. We’ve mentioned this time and time again in our effort to dispel some of the anxieties around out-of-state investment.
What’s important to remember is that what you know may not provide you with the best opportunities, based on metrics like local economic performance and the growth (or lack thereof) of your real estate market and its demand. You very well might live in a great investment market. Chances are, however, that you can find better opportunities and more sustainable options elsewhere.
Relying on Emotion
When investors talk about investing emotionally, it often has little to do with the conventional emotions we think of. Think of it more like investing with rose-tinted glasses. Investors tend to overlook flaws, risks, and reality when confronted with emotion. This might be a desire to be involved and part of up-and-coming hot markets. It might be a need to invest in something new and pristine. It’s those intangible factors that don’t have to do with the actual numbers.
Your gut may have some wisdom for you, but it should never be the sole factor in evaluating an investment property or market.
Waiting Too Late
Fear can get in the way of your goals. Many investors choose to wait until they have all of the information and are completely sure of what they’re doing. They want all the answers and all of the information. While being informed and confident is key, this can lead to waiting too late to invest. These investors, when they pull the trigger, have lost precious time.
It won’t ruin their investment career, but it will stop it from being all that it could be. Time is of the essence when it comes to real estate investment. Don’t make the mistake of falling into analysis paralysis or other anxieties. Sometimes, you just have to pull that trigger.
Getting Stagnant
When you reach a certain level of success and comfort as a real estate investor, it can hurt your motivation to grow. As investors, portfolio growth is absolutely essential in building the long-term wealth that sustains dream retirements and financial freedom.
There are growing pains to be sure, but growing your portfolio is well worth it in the end. Not only does it diversify your risk, but it diversifies and increases your passive income as well as your net worth. Don’t allow yourself to become too comfortable. Instead, plan ahead for how you want to grow and where you see yourself in the big picture.
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