Your perception of real estate is often different from reality. From the outside you can buy any property, make some improvements and walk away with a handsome profit. The reality is that it is difficult to get good deals, make the right updates, find a buyer and close in your timeframe. Additionally, there is almost always an unexpected problem that throws a monkey wrench in your plans. If you give up at the first sign of struggle, you will never reach your full potential.
A majority of new investors never make it past the first year in the business. They think that things will go a certain way and when they don’t they are discouraged and disappointed. Instead of working harder they sulk, make excuses and point fingers at everyone else instead of themselves. The real estate business is full of possibilities, but certainly not without some obstacles. Here are the five biggest challenges that most new real estate investors face.
Investing in real estate is not about accumulating properties, but rather making a profit. Your business may get to a point where you can live with making a smaller profit based on the size of your portfolio. Until you get to that point you need to be extra sharp with your numbers. You need to know everything about the expense sheet and which factors can influence it. If there is any doubt or the numbers don’t make sense it is ok to walk away. There is nothing more deflating for a new investor than buying a rehab property, putting months of work in and leaving the closing table with a fraction of what you anticipated. If you have questions on the expenses, find out the answers. If the risk is not in line with the return, wait for the next one. Always know, and understand, the numbers before moving forward.
No good real estate investor can do it alone. The best investors are comfortable surrounding themselves with the best people they can find. They do not let their experience or lack of a portfolio stop them from pursuing quality people. Know that a good real estate agent, mortgage broker, accountant, attorney and contractor can completely transform your business. Never let your lack of experience stop you from building the right team for your business. Even if you must take a little longer to build a relationship it will yield dividends down the road. Your real estate agent will find deals you really want. Your mortgage broker will call you with new loan programs that fit your profile. Your attorney will handle bumps in the road without being asked. Once you find the right team you will simply quarterback the deals without having to do everyone else’s job. This will save you time, money and make investing as stress free as possible.
Getting a good deal is nothing more than the start of the process. Sure, it is a huge piece of the puzzle, but there are many more hurdles to jump over. One of the biggest obstacles for new investors is turning their properties over in a timely fashion. Time really is money when it comes to real estate investing. Every day your property goes unsold there are carrying costs such as insurance, interest repayment and taxes that must be paid. You need to get your work done and your property on the market asap. Even then your work is far from over. You need to list the property at the right price and understand supply and demand for your market. Sometimes the best offer you will get is the first one. Instead of waiting around for a full price offer with no contingencies, this may be the best option. Holding the property for an extra month or six weeks may not seem like a big deal, but it has a definite impact on your bottom line.
Real estate investing is built on contacts. The longer you are in business the more you will see that your personal contacts make a huge difference. A majority of your deals will come from your contacts and your ability to network. You should plan on doing something every week to meet new people, cement an existing relationship or learn something about your business. Instead of relying on direct mail campaigns or other forms of marketing you will have more success from networking. Instead of looking at showing up at a networking meeting like a chore, view it as an opportunity to grow your business.
As we said earlier, there will be unexpected issues on almost every deal you are a part of. Your ability to deal with them will determine how successful you are. As an investor problem solving is one of your key tasks. You can have a grasp on all the numbers and know what you want to do with the property, but things won’t always go your way. When there is a sudden problem you need to deal with it without making it worse. How you communicate with your contractor, attorney and real estate agent when a problem strikes will either enhance your reputation or instantly ruin it.
There are challenges in every phase of the real estate business. Getting through the first few months is arguably the most difficult.