10 Big Mistakes to Avoid When Investing in Real Estate

make money in real estate

Once the real-estate market starts to rebound, investing in property will become a more appealing idea -- either as a career or a great side job. Like any other endeavor, though, there's a right way and a wrong way to go about it.

Bankrate spoke with established, full-time real-estate investors and with professionals, such as bankers, to identify the 10 types of traps into which real-estate investors most often fall.


1. Planning as you go

Andy Heller, an Atlanta investor and a co-author of "Buy Even Lower: The Regular People's Guide to Real Estate Riches," says lack of a plan is the biggest mistake he sees new investors make. They buy a house because they think they got a good deal and then try to figure out what to do with it. That's working backward, Heller says.

"First, you find the plan," he says. "Then you find the house to fit the plan. Pick your investment model, and then go find property to match that. Don't find the strategy after you find the home."

"People fall in love with a property," says Crowe, the managing director of Springboard Academy, the nation's only real-estate academy for investors. "I say, 'Who cares about the property?' I fall in love with a motivated seller."

2. Thinking you'll get rich quick

That kind of wrongheaded thinking is fueled by "these self-appointed gurus who have infomercials and make it sound so easy to get rich in real estate," says Eric Tyson, a co-author of "Real Estate Investing for Dummies."

Real estate isn't easy. It's a good long-term investment, but so is putting your money in a mutual fund, which is a lot easier. "These gurus don't talk about all that hard work. You have to be smart, you have to be willing to work, and you have to understand your risk tolerance."

3. Playing Lone Ranger

A key to success is building the right team of professionals. At the very least, you need good relationships with at least one real-estate agent, an appraiser, a home inspector, a closing attorney and a lender, both for your own deals and to assist with financing for prospective buyers.

In the remodeling and maintenance segment of the business, the team includes a plumber, an electrician, a roofer, a painter, a heating and air-conditioning contractor, a flooring installer, a lawn maintenance service, a cleaning service and an all-around handyman.

You can't build a business as an investor if you're spending all your time fixing leaky faucets and putting up ceiling fans.

4. Paying too much

Heller says the biggest reason investors don't make money is simple: They pay too much for properties.

"The profit is locked in immediately once the investor buys the property," he says. "Due to mistakes in the analysis, the investor pays too much and then is surprised later when he doesn't make any money."

5. Skipping homework

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