Real estate investment is often considered to be one of the “safer” investment routes out there.
There are a number of different reasons why people come to this conclusion, including the fact that real estate investment includes tangible assets, and the fact that the housing market is a lot more stable than currency.
However, even though this is a safer investment route, it doesn’t come without its risks.
There are a number of risks involved with real estate investment, just like there are with any type of investment, and it is not uncommon for people to fail when attempting real estate investment for the first time.
But, what is the biggest problem in real estate?
To help you out, I’ve compiled a list of 3 reasons why so many real estate investors fail, so that you can avoid falling victim to the same mistakes that they made. If you want to find out more, keep on reading!
Is It Common To Fail In Real Estate Investment?
First things first, let’s take a look at whether, or not, it is common to fail in real estate investment. Well, unfortunately, yes it is. But this isn’t just true of real estate investment, it is true of investment in general.
A lot of the time people dive into investment without the proper knowledge to succeed, and inevitably this causes them to fail.
Even people who are seasoned investors in other markets have been known to fail in the real estate market. This is because investing in real estate is totally different from investing in anything else.
Yes, there are a lot of things that make real estate a safer investment route, but there are still risks associated with it.
The main reason why people fail at real estate investment is because they do not learn from the mistakes of others.
Instead of taking these mistakes on board and doing things differently, a lot of people dive into real estate investment and end up making the same mistakes that others have been making for generations.
That is why it is important to know the reasons why so many real estate investors fail. So without any further ado, let’s take a look at the top 3 reasons why so many fail in this endeavor.
3 Reasons Real Estate Investors Fail
There are quite a few reasons why people may end up failing in real estate investment. But the following three reasons combined are usually what lead to the downfall of so many real estate investors.
1. Unrealistic Expectations
The first thing that leads many investors to fail is because they have unrealistic expectations going into the project. This is something that could damage any type of investment, but in real estate investment it is particularly dangerous.
When it comes to real estate investment, unrealistic expectations can really lead to some bad business decisions.
You have to be realistic in your expectations to ensure that you invest in the right buildings, buy in the right areas and achieve a realistic return on your investment (ROI).
Failure to have realistic expectations could not only lead to disappointment, but also to the failure of your investment before you have even really begun.
Real estate investment is a long-term investment, so you shouldn’t expect huge profits overnight. Due to so many programs about flipping houses, many people believe that real estate investment is a route that can get you rich quick, but this isn’t the case.
Real estate investment is a marathon, not a sprint. It is only incredibly profitable when you are in it for the long haul. Unrealistic expectations that you will be able to get rich quickly will only cause you to fail!
2. Failure To Stick To The Budget
Sticking to a budget is something that is very important when it comes to real estate investment. Your budget is critical to ensure that you actually make money on your investment, and it is crucial that you stick to it. Even when temptation tries to drag you away from it.
There are all sorts of things that you need to budget for in real estate investment. From the upfront costs to purchase a property, to the monthly costs of running that property, and the money needed to do the repairs/renovations.
You will need to budget for all of these while also staying within your budget for your initial investment.
It is so easy to lose track of your budget when you are investing in property. When you are renovating properties, there is always the risk that unexpected costs could pop up, so this is something that you need to be prepared for.
A lot of real estate investors fail simply because they were not prepared for all eventualities.
Before you purchase a property, calculate the maximum amount that you can afford to pay for the property. Then work out an estimate of the monthly costs, and speak to contractors to get an estimated cost of the work needed for the renovation.
Prepare for the worst case scenario and this will allow you to stick to your budget, even when unexpected costs pop up.
3. Not Keeping Up To Date With The Market
While the property market is safer than some other markets that you can invest in, it is still critical that you keep up to date with the market. It may not be as volatile as the stock market, but it still fluctuates.
So, it is important not to put all your focus on your property. To be successful in real estate investment, you need to focus on the market too, and this is a big reason why many real estate investors fail.
There are two types of markets in real estate investment: a buyer’s market and a seller’s market. In an ideal world, you would purchase your property in a buyer’s market and be ready to sell it in a seller’s market.
But remember what we said about unrealistic expectations.
Timing is critical in real estate investment, and failure to take the time to study and become familiar with the market can lose you a lot of money. If you want to be successful in real estate investment, you need to be prepared to be learning constantly.
You cannot get too comfortable in your existing knowledge of the property market because things are constantly changing, and this arrogance could damage your profits.
As well as investing time and money into your property, you equally need to be investing time and money into learning about the property market. Choosing not to do this is one of the biggest reasons why real estate investors fail.
What Is The Biggest Problem In Real Estate? – Summary
While real estate investment is often perceived as a “safer” form of investment, it is not without its risks and it definitely isn’t failure-proof.
It is a lot more common than you might expect for people to fail in real estate investing, and they typically fail because they have not learned from the failures of their predecessors.
In this guide, I have detailed three of the main reasons why so many real estate investors fail, focusing on unrealistic expectations, budgets, and market knowledge.
Thank you for reading!
Frequently Asked Questions
Why Do So Many Real Estate Investors Fail?
There are a lot of different factors that cause real estate investors to fail. Among these reasons are unrealistic expectations, failure to stick to the budget, not keeping up to date with industry knowledge, and not taking the project seriously.
What Are Some Common Mistakes Made By Real Estate Investors?
Some common mistakes made by real estate investors include losing track of the money that they are spending on the project, spending too much on the initial purchase of the property, and overspending in areas that do not add value to the property.
Is Real Estate a Good Investment?
Generally speaking, yes, real estate is a good investment. Real estate is often considered to be a safe investment, and this is because the property market is generally rather stable.
Property tends to hold its value, and it also includes tangible assets, which is why a lot of people enter into real estate investment.
Paul Martinez is the founder of BendingDestiny.com. He is an expert in the areas of finance, real estate, and eCommerce.
Join him on BendingDestiny.com to learn how to improve your financial life and excel in these areas. Before starting this blog, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.