When it comes to real estate investing for beginners, there is a wealth of information available on what novice investors should do for guaranteed success.
But perhaps even more important are the pitfalls you should avoid as a starter when investing in real estate.
Read on below and learn from the 10 most common mistakes made by your predecessors. Every little bit helps and, as a beginner, you can never know enough.
This reduces the chance of your real estate adventure failing or flopping and increases the chances of success!
Below you will also find offers of turnkey investment properties to start passively investing in real estate.
Table of Contents
- 1 Stay with both feet on the ground – Real estate investing for beginners
- 2 Ten common mistakes – Real estate investing for beginners
- 2.1 Emotions over reason
- 2.2 If you fail to plan, you plan to fail
- 2.3 Get in and buy OR postpone and put off – Real estate investing for beginners
- 2.4 Speculation over patience
- 2.5 Not doing your homework
- 2.6 Buying the wrong investment property – Real estate investing for beginners
- 2.7 Poor cash flow management
- 2.8 Financial illiteracy
- 2.9 Half-assed work on inspection and screening – Real estate investing for beginners
- 2.10 Save by managing yourself
- 2.11 Overview of investment properties including secured rental income
Stay with both feet on the ground – Real estate investing for beginners
As a beginning property investor, it is important to remain realistic.
Do not hover or delude yourself into believing that you are a member of a select club of well-known property investors who have amassed billions in wealth in the real estate sector.
While many start with the intention of building a real estate empire, few will ever get past their first real estate investment.
And only a small fraction of ambitious first-time property investors will actually be able to build up a large fortune by investing in real estate.
To help you become a successful property investor, we share below 10 of the most common mistakes beginning property investors make.
You will also be given some tips on how to avoid these pitfalls for beginners.
Ten common mistakes – Real estate investing for beginners
The following ten points of interest are applicable to first-time property investors.
Real estate investing for beginners is an adventure with nasty snags.
So try not to make the following 10 beginners’ mistakes:
Emotions over reason
When buying a home for private use, about 90% of your purchase decision is based on emotions and only 10% on rational logic.
This is understandable because you are (possibly) raising a family at home and you need to feel at home.
It is your sanctuary and it should feel perfect.
However, when it comes to real estate investing, acting on instinct is a common mistake. You should avoid this trap at all costs.
Emotions and money do not mix
By allowing yourself to be led or overwhelmed by emotions, you are more likely to overpay for a property, rather than negotiate the best possible deal below market value.
This will make it harder to achieve your investment goals in terms of return.
You should always invest on the basis of analytical research. Will the investment property yield the minimum profits and returns you want and envisage?
Will you be able to find suitable tenants, taking into account the location of the property?
And can you count on a stable buyer’s market in the future to sell off your investment when the time is right?
You can achieve financial success by asking and answering these kinds of questions in advance.
Analyse objectively and make the calculation
Instead of buying a house to let because you like the kitchen or because it could be a cosy and easy-to-rent holiday home, you act on the basis of possible financial gain instead of personal, subjective feelings.
At the end of the day, investing is only about economics, numbers and an analysis that is as objective as possible. So when evaluating an investment property, leave all subjective emotions behind.
Naturally, you may be attracted to a certain kind of energy that you can feel in a particular investment property.
But never let your purchase decision depend on such a subjective and personal feeling.
Real estate investing for beginners should be done objectively and critically.
If you fail to plan, you plan to fail
It is an old saying but no less true.
If you try to build up a lucrative real estate portfolio without a strategic plan of attack, it is like setting off on a journey by car without a map, compass and GPS…
The consequence? Sooner or later, you are bound to take a wrong turn and get lost!
To successfully build up wealth with real estate, you need to set clear goals.
You need to determine where you want to end up and then draw up a coherent plan to get there.
Real estate investing for beginners means thinking about both the short and long term and making sure your investment decisions are in line with your overall strategy and aspirations.
Determine what you want to achieve in terms of income from the investment property:
- Are you aiming for short-term returns (passive income via buy-to-let properties)?
- Or rather to long-term capital growth without needing a lot of positive cash flow in the short term?
It is also important to think about how best to manage your cash flow as a property investor.
What type of property should you buy to achieve your income goals?
How many monthly positive cash inflows are you aiming for? Stick an amount on it explicitly and count the other way round.
Because with a well-thought-out overview and plan for your property investments over the years, you will be exactly where you want to be.
So work on your financial plan and then put your strategic property plan into action.
Tip: Be sure to check out the online defensive real estate investing course [AVAILABLE SOON] and pay attention to the value investing strategy in real estate.
Get in and buy OR postpone and put off – Real estate investing for beginners
Two of the most common characteristics of first-time investors who never get beyond a single investment property (or sometimes never buy their first property!) are the following:
- Either acting too impulsively after getting an impulse and buying a buy-to-let property immediately, or
- Being extremely cautious and as a result not trading at all and therefore never buying an investment object.
Impulse buying of real estate as investment
The former type of investor, the impulse buyer of real estate, is in too much of a hurry.
Such an individual thinks that the property should have been owned yesterday.
It is the type of investor who attends a real estate seminar for beginners and invests in the first ‘blueprint’ for investing in real estate.
One more reckless purchase may follow without much thought and if it does not make the investor rich overnight, he or she will throw in the towel.
The conclusion is then as follows: “Real estate is just not my thing.”
Such people are too impatient and forget that getting rich in real estate is a marathon and not a sprint.
Purchase postponed due to doubts
The second type of investor is a procrastinator and is his own nemesis.
Such an individual attends every seminar, reads all the books and watches all the DVDs and property series on television or streaming services such as Netflix (think The Vanilla Ice Project, Fixer Upper, Genevieve’s Renovation, Flip or Flop and My First Place).
The hunger for information and education is so great that it eventually leads to an information overload. A total tsunami of information.
Such an individual ends up being overloaded with packets of information, making it impossible for him/her to act and make decisions.
We call this phenomenon analysis paralysis.
And feeling so overwhelmed by too much information in such a short time leads to procrastination and, ultimately, to cancellation.
One of the mistakes of beginning property investors is to give up due to information stress.
Walk the golden mean
While the former, the impulsive buyers, can sometimes learn from their mistakes and make a success of their investment efforts, the latter, the fearful, will never overcome their fears.
The best thing you can do as a beginning property investor is to look for a middle ground.
Naturally, you need to gather and absorb as much knowledge and information as possible right from the start of your real estate adventure.
This will allow you to become as familiar as possible with the technical jargon and learn how to make the best investment decisions.
But… Do not think you will ever completely know it all.
There will always be unexpected things during the process. Anticipation and adjustment is part of the process.
There is always something new to learn, but the best way to gain knowledge is by effectively immersing yourself in the world of real estate.
The message from experienced property investors on real estate investing for beginners: Starting hands-on and adjusting where necessary.
Speculation over patience
Many people start investing in real estate in the hope of becoming millionaires.
They think that real estate will be a quick solution to their financial desires or problems…
But the truth is that the search for short-term profit in real estate is more about speculation than strategic investment.
The main reason why investing in bricks is a long-term investment is that a property investment lacks the liquidity and volatility that other asset classes such as shares have.
In other words, it is not so easy to buy and sell real estate quickly given its illiquid nature.
If you do, it is difficult to make a good living out of it. Making a profit from real estate takes planning and patience.
It takes time to sell property and then there are the many costs, of which capital gains tax can be one.
Such a tax on profits depends on the tax rules of the country where the property is located.
Treat property investments with patience and perseverance
Where some see the illiquid nature of real estate as a setback, you should see it as an advantage.
Real estate belongs to the lowest base layer of Maslow’s pyramid, which means that everyone needs shelter.
It is a basic need of everyone on this planet. In other words, everyone needs a home to live in.
And it is precisely because of this that real estate has long had the potential to generate stable, long-term profits through the power of the compound interest principle.
In other words, you use the profit made from one property to invest in another.
Then you sell this second property, for example, and with the combined profit of the two properties you add another property to your portfolio.
The capital gains you book thus constitute the interest on your investment, which in turn yields interest (capital gains or positive monthly cash flows on rentals).
In fact, you can use third-party money (from financial institutions such as banks, for example) to put this principle into practice.
No other investment class gives you the opportunity to leverage so successfully. In the long run, you can build your own real estate empire.
By investing in real estate with patience and perseverance, you will gain significantly more success (and wealth) than if you were to go looking for the ‘next big thing’.
It is the only way to climb to the top of the property ladder as a private real estate investor.
Not doing your homework
Learning to understand a local property market takes time. Even many experts have difficulty understanding the cyclical nature of real estate.
So do not expect that after attending a couple of seminars and/or reading a number of books, you will know exactly what kind of real estate you should buy as an investment.
You should get to know the neighbourhood in which you intend to invest well. More than that, you need to specialise in a specific real estate market.
Familiarise yourself with a particular area by going out and talking to locals, shopkeepers, estate agents and property managers.
Learn all about the local amenities, vacancy rates and historical value of the area.
Also find out if there are natural threats such as floods or volcanic eruptions in certain foreign regions.
Once you know the area, get to know not only the investment property, but also the street where the property is located.
You can never know too much about your investment, due diligence is important!
The same applies to furnished, turnkey buy-to-let properties.
Even if you invest in buy-to-let properties with a rental guarantee, it is always interesting to check out the neighbourhood and the location. A good location is and remains important.
Buying the wrong investment property – Real estate investing for beginners
If you don’t do your homework properly, it will inevitably lead to a big investment blunder!
By getting to know your market, you will know which properties to buy.
In other words: Think carefully about the type of tenants in a particular region.
If you are investing in a suburb, for example, you need to find out whether this area mainly attracts families, or rather single or childless couples
The demographics of an area should have a great influence on the type of property you buy as a rental investment.
So if you want to enter the family housing market, it is not a good idea to invest in a two-bedroom flat.
And if you want to target young, childless tenants, a large family home is not a good match for your purpose either.
The moral of the story if you are interested in real estate investing for beginners: Get to know your market and tenant profiles and invest accordingly.
Poor cash flow management
It is easy to fall into the trap of poor cash flow management as a first-time investor in real estate.
Liquidity problems are therefore a serious threat not only to companies but also to property investors.
Understanding all the costs involved in acquiring and retaining property can be difficult as a start-up real estate investor.
You should always seek the advice of a professional financial planner or accountant who is knowledgeable about property investment.
This way, you ensure that you know exactly where you stand financially.
Also make sure that you can afford to keep the property you buy in portfolio.
Negative cash flow = Need for additional savings for real estate
Need for additional monthly savings for the real estate. This is the case if your rental property yields less each month than it costs.
Such a scenario occurs if there is heavy borrowing and the rental income is insufficient to cover the capital repayments, interest and costs.
In other words, how much income will your investment generate and will it be enough to cover your expenses? If not, can you cope with a financial shortfall?
Because this amounts to a monthly negative cash flow and therefore the requirement to have additional monthly savings that make up for this…
And not everyone who is interested in real estate investing for beginners feels like having to put in additional savings on a monthly basis.
Positive cash flow = Passive income through real estate
Don’t have any extra savings at the moment?
Or do you not feel like having to save more on a monthly basis?
Then try to find out together with an experienced financial planner how you can achieve a monthly positive cash flow with your buy-to-let property:
- Play with the term of the loan for the buy-to-let property in order to reduce/increase the repayments,
- Consider a bullet loan where you only pay off interest during the term and the capital at the end,
- Play around with the amount of your own contribution to see the effect it has on your monthly repayments,
- Consider including more safeguards such as:
- Mortgage on partially or fully redeemed owner-occupied property,
- Capital accumulated in pension savings plans and/or group insurance policies
- Investment portfolios with shares, stocks, options, trackers, etc
A positive cash flow means that you deduct all monthly costs from the rental income and still have a positive amount left over.
Interested in such a positive monthly cash flow and passive investment in real estate?
Create provisions and reserves – Real estate investing for beginners
Tip: Do not forget to take into account any unforeseen circumstances, such as longer vacancy periods or unexpected maintenance costs.
A good rule of thumb is to set aside a fraction of your rental income and keep it available for expenses such as taxes, insurance and maintenance and management costs.
It is great to dream about the wealth you can build with real estate, but it is crucial to enter into real estate investments with your eyes wide open.
You will have to incur a lot of expenses along the way.
So make sure you have a large enough cash buffer so that you do not suddenly have to sell your property because you do not have enough cash at your disposal.
Assess each potential investment critically and analytically and make sure you have enough money set aside for various unforeseen costs.
By underestimating your income and overestimating your expenditure, you will have fewer financial surprises in the future.
The best advice for any novice investor on financing investment property?
Seek help from a financial planner who can match your personal goals with an appropriate financing solution.
Do you make your own financial plan? Then find a qualified, professional mortgage broker who can help you with the loan for a buy-to-let property.
When you are acting alone, getting the right type of financing can be daunting and time-consuming.
Mind you, in the long run the right financing can save you thousands of euros.
Setting up a weak or non-optimal financing structure can be just as damaging to your investment as selecting the wrong type of investment property.
There are many considerations to be made, so a good financial planner, who can do more than just give you a tour but can also prepare a sound financial plan and understand real estate investments, will be able to steer you in the right direction.
Successful real estate investing for beginners therefore also depends on the smart financing of the investment property in question.
Half-assed work on inspection and screening – Real estate investing for beginners
You have found the right property and you are ready to invest.
Have you done thorough research on the property investment? Do you know why the seller is selling?
Knowing the motivation of the seller can make a big difference when negotiating the sales price.
Look for the seller’s weaknesses
During the first inspection, look for clues about the seller’s personal situation.
Is the seller going to move because of a divorce, for example?
Although it may sound a little insensitive, this gives you the opportunity to score a bargain, while at the same time allowing the seller(s) to get on with their lives.
Finding a motivated seller will give you the best chances of snagging a property deal below market value and buying very competitively.
Do not save on inspection costs
Have you had relevant inspections carried out (by an experienced contractor) to reveal structural defects or traces of pests (such as termites)?
Such a thorough and extensive inspection will cost you approximately €500 to €1000. And you don’t just buy peace of mind with it.
You can also save thousands of euros in the long run by avoiding buying a property with many hidden defects.
Put yourself in the shoes of the future occupant
Finally, is the property habitable from a tenant’s perspective? Do not forget that although you will not live here yourself, someone else will.
Ask yourself: is the layout, division and floor plan attractive and is the house comfortable and practical?
Always carry out a second and third inspection at different times of the day. Is it noisy during rush hour?
What is the light like at different times? Are the neighbours party animals or just quiet? Is there a nuisance from low flying aircraft?
Or is there a recreational area for clay pigeon shooting or paintball nearby that regularly causes loud bangs to be heard?
In short, go and screen on the spot and do it with the mindset of a real resident.
Note all the things that might bother you and then consider the pros and cons.
Go through a comprehensive checklist when inspecting a potential buy-to-let property.
Then you will ensure that you make the best possible investment in real estate every time.
Save by managing yourself
You have taken all the necessary precautions and made the best possible real estate investment… Now the hard work really begins!
Many investors think that managing the property portfolio themselves saves a lot of money.
They hope to increase their profits by finding tenants themselves, collecting rent, carrying out maintenance and so on. However, this is a complete misconception in practice.
Real estate investing for beginners: Start with scalability in mind
In the short term, managing your own property seems feasible… But what happens when you eventually build up a portfolio of, say, twenty properties?
The continuous management of such a portfolio amounts to a full-time job!
You need to find and qualify suitable tenants, know the laws relating to rentals, regularly review your rent, conduct regular inspections to ensure your tenants are handling your property properly, collect rent, deal with legal disputes, resolve maintenance issues that crop up, and so on.
Apart from that, you are expected to be available to your tenants by phone 24/7.
You should also try to avoid some types of tenants altogether to avoid extreme problems.
Does this sound appealing, this kind of do-it-yourself real estate investing for beginners?
With a property portfolio of several properties? Constantly being a slave to your real estate investments? We do not think so…
Outsource the management: Carefree real estate investing for beginners
Engage a professional property manager to handle all these matters on your behalf.
This does not only mean that you get the best out of your investment property with the best possible return.
It also means that you get more of the most valuable thing in the world: free time.
After all, time is just as valuable as money and ROI when it comes to real estate investing for beginners!
You can spend your time a lot better than managing your property…
With this time gained, you can look for more investments to add to your portfolio and generate even more wealth and assets.
Are you interested in this approach to passive real estate investing without worries? Then be sure to check out the ready-made property offers below.
These buy-to-let properties come with a professional service package, rental service and rental guarantee with guaranteed income:
Overview of investment properties including secured rental income
Are you interested in a fully furnished property operated for you by a professional?
So that you can enjoy your leisure time and passive income without worry? Then take a look at the following investment property offers.
As a private investor, you can acquire full ownership of the property and count on a completely carefree management service.
So real estate investing for beginners need not be complicated or time-consuming at all.
Moreover, with such offers you can also count on guaranteed rental income and thus a guaranteed return:
- Holiday homes as real estate investment
- Buy a newly built holiday home in France with attractive returns and free personal use in the Wyndham Halcyon Retreat Golf & Spa Resort:
- Furnished, including household goods and without hidden costs (developer covers maintenance costs and periodic costs of furniture and household goods)
- Attractive annual return calculated on the purchase value of the holiday home (and possibly more if you partly finance it with a loan), rising to 8% a year
- From 42 500 Euros of own funds, you acquire full ownership with the help of financing
- Free 2 weeks of private use per year!
- Two optional resale guarantees: Selling at a minimum of 125% or 150% of the original purchase price after 5 or 10 years respectively
- Buying recreational property in France as an investment
- You can invest in this French resort from 17 230 euros,
- 3 to 8% annual return,
- 2 optional resale guarantees: Sell your investment at a minimum of 125% or 150% of the original purchase price after 5 or 10 years respectively
- Holiday homes on the Costa del Sol for sale [AVAILABLE SOON] in Spain
- Unique location in a resort with golf facilities and close to the sea
- Annual initial yield of 5% (+ rental service)
- Private use at limited annual costs (minimal impact on your rental yield)
- Buy a holiday home on Samos (beautiful island of Greece)
- In a beautiful bay
- Guaranteed rental income + attractive conditions of own use
- Choice of various property types (also villas for sale)
- Buy new property in Montenegro [AVAILABLE SOON]
- Top location in Tivat on the Adriatic Sea
- Projected annual gross yield > 6% (carefree rental service) (also for purely private use without rental yield)
- 6 weeks of private use per year
- Buy a newly built holiday home in France with attractive returns and free personal use in the Wyndham Halcyon Retreat Golf & Spa Resort:
- Already let properties as investment
- German real estate as an investment with rental guarantee, including syndicate and full stewardship, no hidden costs
- Real estate in Germany as an investment – including management and rental guarantee
- Purchase price all-in from +/- 50 000 euro
- Attractive guaranteed rental income
- Investment properties in Germany – with guaranteed rental income and secure rental return
- Including free stewardship
- Investment possible from EUR 35 000 own resources (in combination with limited funding)
- Invest in rental property in Sweden [AVAILABLE SOON] – Including an English-speaking local agent
- Invest from 30 000 Euros of own funds (rest of the financing via a mortgage or bullet loan)
- +/- 7% gross rental yield per annum (calculated over the purchase value)
- Magnificent value for money – Includes garden of 500 to 1 000 m² in full ownership
- Invest in rental property in Sweden [AVAILABLE SOON] – Including an English-speaking local agent
- Real estate investing for beginners in the United States: