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11 real estate investor mistakes

11 Investor Mistakes and How to Avoid Them

In this blog post, we’ll discover the 11 most common investor mistakes and what you can do to avoid them.

By avoiding these investor mistakes, you’ll be in a much better position to make smart investment decisions and achieve your financial goals.

Approaching real estate investments as a gamble and hoping to build your investment portfolio can be the biggest investor mistake. Warren Buffett did not say that.

Investing in real estate as part of a diversified portfolio including s&p 500 individual stocks, and exchange-traded funds ETFs can be a great way to build your wealth. A good financial advisor will agree that all of these investment decisions come with their own unique risks.

These common investing mistakes can be easily avoided if we take investment advice seriously and think above and beyond the annual returns on investments in real estate, the stock market, or mutual funds.

11 real estate investor mistakes

Investor Mistakes #1:Waiting for the “perfect time” to invest in real estate

If you have been putting off investing in real estate due to the belief that there is a “perfect time” to do so, you could be making the most common mistake. The truth is that there are many different variables involved in determining when it’s the most advantageous time for you to invest in real estate and waiting for the perfect time could mean missing out on opportunities.


The key is to research the current market, find a good deal, and make an informed decision that works best for your financial goals. Investing in real estate can be a great way to build wealth over time, so don’t let waiting for the perfect time keep you from seizing valuable investment opportunities.
There is no way to be time the market and guarantee success for yourself as a real estate investor however careful considerations of the overall market help you create risk-mitigating strategies before they surface.

Investor Mistakes #2: Waiting until you have the cash

When it comes to investor mistakes, not having enough cash to invest in real estate is one of the main issues that people face. It’s quite idealistic to assume that you’ll be able to save up enough money any time soon to make an investment – perfect moments simply don’t exist. 

These days smart investors use the lender’s money to invest in real estate. In Canada, regardless of the mortgage stress test, all you need is a 20% down payment plus the closing costs to purchase an investment property.

As the real estate prices are going up in the Mississauga, Oakville, Toronto GTA area the idea of the joint venture is also getting its fair share of attention. It’s worth looking into.

If you already own real estate there are lenders who will be more than happy to consider the existing equity in your property.

Waiting until you have the cash

You’re leveraging the bank’s money so your returns can be up to 10 times the amount that you invest! Instead of waiting until you have a down payment, you start earning dramatically higher returns in a matter of only a few years! 

This being said, do not sit on the fence and beat yourself up for not having enough cash to invest. Speak to a proficient mortgage broker/agent who understands real estate investment mortgages, and joint ventures and most importantly have access to many specialized lenders and private investors.

Not doing your own research

Investor Mistakes #3: Not doing your own research

Many people are stuck on the television and radio news where they only talk about doom and gloom and negative market moves and negative returns.

Most of the stats and surveys are taken out of context and skewed to match a particular narrative and trend to create hype and fear.

The only good decision is an informed one. Only consider buying an investment property if you fully understand the local market, zoning laws, pricing trends, wholesale opportunities, rental demand, local transit, amenities, etc. 

Here's some of the research that's required to avoid common investor mistakes

You make your profit when you buy a property, not when you sell it. Pay too much, and you’ll never recoup as much as you could have if you’d driven a better bargain. Look for buyers who are being forced by circumstances to sell. And don’t be in a rush to buy. If it’s evident that you’re prepared to walk away, you’ll usually get a better deal.

If the number of For Sale notices is rising, and the number of For Rent notices is falling, fewer people are buying, and more are renting. This could be the ideal time to pick up an excellent long-term real estate investment. On the other hand, if both the For Sales and Rents are decreasing, a flipping strategy may work best.

The key is not just to do your market research but to have an expert to help analyze the findings and provide unbiased advice. As an expert in real estate investment financing, I’m happy to meet you any time, discuss the local opportunities and offer innovative strategies to help you start profiting today.

Relying on the daily news is another new investors mistake. Be sure to spend your own time researching the regional and local stats for your target area.

If you don’t have time to do so, speak to a local realtor. Can’t find one? We can refer you to a few to interview. 

Investor Mistakes #4: Not developing a strategy in advance

As they say, fail to plan, and you plan to fail! It’s essential to set realistic goals, define a plan for achieving them and establish clear benchmarks, so you’ll know how much progress you’re making. Be clear on the number of properties you can handle, financing strategy, investment strategy, due diligence, etc.
Most important, know your exit strategy before you buy. Are you in it for quick short-term profits or long-term appreciation and cash flow? I can help you evaluate each option and develop the strategy that works best for you:

Historically, real estate doubles in value every 7 to 11 years (equivalent to 6% per year on average throughout the period). So, a house worth $100,000 today would, on average, be worth $200,000 after 11 years. And while your asset value has doubled, the amount you owe has dropped substantially, thanks to the payments you’ve made—which are typically covered by rental income. 

So, you end up with a massive increase in equity which can be used for further investments! 

NOTE: Long-term appreciation is a strategy well suited to cautious investors.

In many real estate transactions, money can be made within days or weeks (sometimes even hours or minutes!) of the purchase. These transactions are often called “flips.” The key here is to buy low and sell high.

 If you buy a property for 50¢ on the dollar, you’ve already won—you’ve made money on the “front end” of the deal. When this profit gets reinvested into buying more investment properties, the rate of return (ROI) is even higher. 

For example, let’s say you buy a property for $850,000, which is 15% below market value. Even if you sell the property for $950,000—still 5% below market—you net well over $50,000 after closing costs and expenses. 

That $50,000 can then be used as a down payment for another transaction, yielding an additional discount on the new property. As you continue to roll your profits through further purchases, you could eventually start making total cash purchases, easily qualifying for 30% or higher discounts from sellers! 

NOTE: Short-term profit is better suited to experienced, risk-tolerant investors.

Ignoring your real assets
Investor Mistakes #5: Ignoring your real assets

Many new real estate investors get super focused on their real estate and disregard their actual assets, the tenants.

This common real estate investor mistake leads to frustration and landlord-tenant disputes and creates a bad experience for investors.

In 2023 when carrying costs are higher due to the high-interest rate, it is vital to search for an excellent long-term tenant for your financial stability. Put some time and effort into knowing your tenants upfront. 

A good realtor can be a big help when looking for a tenant for your next investment property.

The tenants are the actual people who help you build your assets by paying your mortgage every month. Take good care of them, make them comfortable, listen to their complaints, and get them fixed quickly. 

Remember, the longer your property stays occupied, the lower the vacancy rate and the lesser need for the emergency funds you will have to use to cover your mortgage payments.

Always be aware of the local landlord acts so that you stay within the framework of legal limits as a real estate investor.

Always work towards saving your real asset, i.e., your tenants.

Not having an emergency fund
Investor Mistakes #6: Not having an emergency fund

This is another real estate investor mistake many commits and end up in trouble.

Real estate is rewarding when done correctly or else it does lead to dire consequences. Despite having the best planning and strategy in place, every real estate investor should have access to a pool of emergency funds all the time.

To avoid this investors mistake, include emergency funds as part of your initial investment plan. The amount of emergency funds depends upon the overall state of the property, and the tenant’s profiles in general.

 However, the rule of thumb is to have at least 3 – 4 months of expenses in your emergency funds for every property you own.

Getting the wrong mortgage product
Investor Mistakes #7: Getting the wrong mortgage product

This investor mistake is committed by many new real estate investors who do not understand the full scope of the financing and opted for a product based on the rate of interest alone. Another big reason for this mistake is ill advice by a banker or even a mortgage broker/mortgage agent.

As a real estate investor, you should have a clear understanding of what you plan to do with a property i.e., selling it in the next 6-12 months, holding it for the longer term, demolishing and rebuilding it and much more. 

Another critical aspect of financing is the type of interest rate and term of the loan. They play a key role when you decide to sell it or likes to tap into the existing equity to invest in real estate.

Getting a mortgage for an investment property should be more than just the lowest rate of interest. A good mortgage broker/mortgage agent as part of your power team can help you avoid this investor mistake and can help you save money.

Not taking advantage of tax-deductible mortgages
Investor Mistakes #8: Not taking advantage of tax-deductible mortgages

While we may think that Canadian and USA real estate rental income laws are the same, they are not, especially when it comes to tax-deductible mortgages.

In Canada, if real estate is being used strictly as your primary residence, no portion of the mortgage payment including interest and principal is income tax deductible.

The three main scenarios where your mortgage is tax deductible is when you are receiving a rental income, and part of your residence is being used for business-related activities.

 Interest paid on the secured line of credit (SLOC/ HELOC), or mortgage may also be tax deductible if you have used it to acquire an investment property.

You are encouraged to speak to your accountant about it to know if your mortgage is tax deductible.

Investor Mistakes #9: Ignoring Income Tax Implications

Many new real estate investors take the Income tax implications lightly and jump on the real estate investment bandwagon without understanding the tax implications.
As a rule of thumb, it is vital to know that 50% of the net profit of the sale of a rental property gets added to your personal income to calculate income taxes for the year.
You should always account for the income tax and keep part of the proceeds to pay CRA.

Paying it too soon
Investor Mistakes#10: Paying it too soon

When you buy something, it’s only natural to want to pay it off as quickly as possible. But remember, the rental income helps cover the mortgage payments with rental properties. 

So, since someone else is making the payments, what’s the big hurry to pay it off? Especially since your mortgage interest is tax deductible! The best strategy is to keep your mortgage as big as possible while still being covered by rent. 

It generates the maximum tax deductions and constantly frees up new equity that can be used to make new investments. Again, I can help tailor a strategy and a mortgage to suit the needs of your real estate investments.

Investor Mistakes #11: Trying to do it all on your own

As I said, it’s not what you know; it’s who you know. 

There’s no way one person can be an expert at all the steps involved in real estate investment. But by developing a team of professionals to rely on—such as mortgage brokers, accountants, financial planners, lawyers, real estate agents, contractors, property managers, etc.—you’ll have all the necessary resources and knowledge.

Just as with any other business venture, networking is essential. Join a local real estate investment club or a property owner’s association. Make friends with city hall clerks or bank employees who know which properties are about to be sold. Work with real estate agents to identify possible buys.

 

As a local specialist in real estate investment, I have a Rolodex of professionals I can recommend, as required. With a single phone call to me, you can access all the expertise and support you need to turn your dreams of real estate investment into reality!

If you are looking to buy an investment property or are looking to tap into your existing home equity, connect with us today to explore your options.

We have access to Banks and non-bank lenders who do not follow the mortgage stress test guidelines.

We do what your banks can’t do for you especially if you are self-employed or got bad credit.

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