I hate to be a Debbie Downer, since I'm typically an optimist. But I'm also a realist, which helps me be a winner in the real estate investing game. Part of winning is to understand the enemy, so to speak. In this case, the enemy for every real estate investor is the problems inherent to the business. Once you learn what some of these problems are, you can formulate a plan to beat those enemies and win.
You have to start somewhere, but if you don't know what you're doing in real estate investing, you could actually lose money on a real estate deal. Or you could be too trusting of the wrong sources and be tempted, perhaps, to attend one of those "free" real estate seminars.
Losing money on a deal
People often think buying real estate is a sure thing and real estate always appreciates. Real estate can be a great way to make money, and it often does appreciate, but you can still lose money investing in real estate if you don't know how to evaluate a deal. For example, in the case of a flip, if you pay more for the property in acquisition plus renovation and repair costs than what the property will earn you in a sale, you'll lose money.
In the case of a rental property, if you can't get the rent you need to hit your numbers, or worse, if you can't rent out the unit at all because the rental or neighborhood just isn't attractive to renters, you're likely to lose money.
Real estate seminars
Real estate seminar organizers are experts at getting newbie investors to attend their free seminars. They promote the event as a way for people to get rich by learning to invest in real estate. But what typically happens is the first free seminar is a teaser to get you to sign up for a paid event. You might then be asked to pay even more money for additional training. You'd probably be better off using your money to fund an investment than handing it over to the folks behind a house-flipping seminar event.
2. Taking on too much risk
You can lose in the real estate game if you take on too much risk, such as if you're overleveraged. The higher your debt, the greater your risk. Case in point: Airbnb investors and the coronavirus.
Some Airbnb investors haven't been able to make their mortgage, insurance, and property tax payments since the coronavirus hit because travel has been down -- in some cases down to no travel at all. That means people have no need to stay in an Airbnb. Many Airbnb investors, such as ones with only one or two properties, will probably be fine once travel returns to normal. But not all investors can wait that long, especially investors with more than 25 properties (which are about a third of U.S. Airbnb investors). Those folks really took a hit.
What happened with Airbnb investors during the coronavirus pandemic demonstrates that real estate can be unpredictable and based on forces beyond your control.
Not many people can or want to buy an investment property using all cash. They need to finance the deal, which can trip you up.
Generally, you'll pay a higher interest rate and will be required to put down a larger down payment for a mortgage loan with an investment property versus buying a home as your primary residence. So be prepared for that.
If you finance a deal through a hard money lender, perhaps because you can't get a loan from a bank, the loan will be even more expensive than other forms of financing. Plus, hard money loans are for a short term, usually one or two years. House flippers are the typical market for hard money lenders, but if the house doesn't sell by the time the loan comes due, it's a problem.
The Millionacres bottom line
There's no doubt land mines exist in real estate investing. But once you learn to avoid them, you'll be better prepared to be successful. Learn how to evaluate the factors that can increase your odds of making a great deal versus a bad one, don't take on more risk than you can handle, and find a trusted lender.