Feb
2025
Common Mistakes to Avoid When Investing in Real Estate
DIY Investor
2 February 2025
Let’s face it: in real estate investing, you’re going to trip up. But you want your mistakes to be the kind that’d make a seasoned investor go, ‘Huh, never saw that coming,’ not the ones that’d have them rolling their eyes Written by: Edrian Blasquino
Let’s unpack the eight most common pitfalls—and how to leap over them.
1. Underestimating Costs
Newbies often fixate on purchase prices, ignoring hidden expenses like repairs, permits, or vacancy periods. Emotions override math.
How to dodge it:
- Rule of thumb: Double your repair estimate.
Hire a contractor for a pre-purchase inspection (not the seller’s buddy).
- Budget for “phantom costs” like property taxes, insurance, and a “oh crap” fund for emergencies.
- Larger properties (e.g., duplexes or fourplexes) spread costs across multiple units, lowering per-unit expenses. But don’t get complacent—a leaky roof over four units is still a leaky roof.
2. Skipping Due Diligence
FOMO (Fear of Missing Out) turns rational brains into impulsive ones. You panic-bid on a property without verifying anything.
For instance, you buy a “high-demand” condo, only to learn the HOA is suing the builder for shoddy construction. Cue the lawsuit tango.
How to dodge it:
- Research like a detective: Pull crime stats, school ratings, and flood maps.
- Talk to neighbors—they’ll spill tea the listing won’t.
- Verify rent comps yourself. Zillow hasn’t earned your blind faith.
- For apartment buildings, scrutinize each unit’s condition. A single bad tenant or outdated unit can drag down overall cash flow.
3. Over-Leveraging
Enthusiasm masquerades as confidence. You max out loans, assuming rising rents or appreciation will bail you out.
Don’t expect banks to sympathize when they don’t.
How to dodge it:
- Stick to the 50% Rule: Assume half your rental income will go to expenses before mortgage.
- Keep a cash reserve worth 6+ months of payments.
- Never forget: debt is a tool, not a trampoline.
- Larger properties often have steadier cash flow (vacancies hurt less when you have 10 units vs. 1), but don’t let that lure you into overborrowing.
4. Falling in Love with a Property
You tour a home with “good bones” and start mentally arranging your future Airbnb guests’ five-star reviews.
For example, you overpay for a quirky historic home because “it has character!”—then
realize “character” means zero insulation and lead pipes.
How to dodge it:
- Set strict investment criteria before hunting (e.g., “I only buy properties with 8%+ ROI”).
- Treat properties like stocks, not soulmates.
- Bring a no-nonsense friend to viewings to slap sense into you if needed.
- Deals are all about numbers, not charm.
5. Ignoring Location
Bargain prices in sketchy areas glow like neon signs. You think, “It’ll appreciate…right?”
There’s making an educated guess, and there’s hoping. Don’t ever just hope.
How to dodge it:
- Follow the 3 L’s: Location, Location, Location.
- Invest near job hubs, schools, or public transit—not just “cheap” spots.
- Drive the neighborhood at night. If you’re scared to roll down your window, skip it.
- A well-located apartment building can thrive even in mediocre markets. Prioritize areas with population growth and diversified employment.
6. DIY Overconfidence
HGTV makes flipping look like a weekend project. You think, “How hard could tile work be?” (Spoiler: Very.)
What if you tear out a wall to “open up the space” and find asbestos, a cracked beam, and a family of raccoons? Budget: vaporized.
How to dodge it:
- Hire pros for anything involving permits, plumbing, or structural changes.
- Time = money. If you’re not experienced, DIY delays will cost more than hiring.
- Watch YouTube after buying the property, not before.
7. No Exit Strategy
New investors focus on the buy, not the “what if?” Life happens—markets dip, tenants leave, or you need cash ASAP.
How to dodge it:
- Plan three exits: Rent, renovate, or resell.
- Stress-test your finances: “Can I survive 6 months with no renters?”
- Update your strategy yearly. Flexibility is your safety net.
- Multifamily properties offer diverse exit options: sell individual units, refinance to pull equity, or transition to long-term rentals.
8: Overlooking Scalability
First-timers focus on a single property without considering how it fits into a broader portfolio.
Say that you buy a single-family home, then realize scaling requires 10x more effort (and risk) than starting with a multifamily property.
How to dodge it:
- Think long-term: Multifamily investment strategies inherently offer scalability—more units under one roof mean easier management and economies of scale.
- Start small (a duplex) to learn the ropes before tackling larger complexes.
- Use your first property as a learning lab. Track what works, then replicate it.
Wrapping Up
Real estate investing isn’t about avoiding mistakes; it’s more about avoiding expensive ones. The best investors just seem psychic. In reality, they’re just prepared.
If you’re eyeing real estate to grow wealth, you’re already ahead of the curve—these investments balance risk and reward beautifully if you respect the numbers. Whether it’s a duplex or a 20-unit complex, treat due diligence as your religion and cash flow as your compass.
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