INVESTORS’ CORNER: How to lose money in real estate

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If I were to write about how to get rich quick, without effort, success, or risk in real estate, the resulting effort would be buried in a mountain of other, similarly-titled works. You can get rich quickly in real estate, but only relatively so- and risk will only decrease with specialized knowledge and experience.

So, for those of you with a surplus of money that you have been yearning to rid yourself of, I proudly share with you some of the top ways to lose it by investing in real estate!

1. Lack of Education/Training. This is listed first for a reason, as anything else is simply a subset of this. Real Estate Investing is a full contact sport. If you knew you’d be stepping into the ring with the world boxing champion for your weight class in 12 months, I bet you’d want some training first. Even if you felt you stood no chance of winning, you would at minimum want to know how to guard and defend, how to strengthen your neck muscles so that a properly landed punch would not give you whiplash, strengthen your abs so that the same instrument of destruction would not cause internal bleeding. Yes, a 3 day training seminar from a top Real Estate trainer may cost you $5K. When you attempt to purchase investment property without Education or Training, you are stepping into the ring with a world champion whose every landed blow can easily cost you more than $5K, and a few such failures to defend will end in nothing other than the knockout blow of profit turning to red ink faster than a referee could perform a “standing eight count”. Whatever mistake you can make or problem you attempt to solve, someone has done so successfully before you, and can teach you to sidestep it. If you think education is expensive- try ignorance.
2. Misjudging the neighborhood, you buy in: You can make money in investing regardless of the neighborhood, but woe upon he or she who attempts a strategy based on a mistaken evaluation of the neighborhood.
3. Underestimating repairs.
4. Over or under-improving the property based on your intended exit strategy.
5. Poor tenant screening and incorrect methods of ongoing property management.
6. Paying too much. This is the most common mistake. A low enough purchase price will give you the necessary cushion to fix most other errors.

Lou Gimbutis is director of education at the Metrolina Real Estate Investors Association, which provides education, mentoring, and networking for real estate investing in the Charlotte region. He can be contacted at [email protected]. For more information, visit www.MetrolinaREIA.org.