Everybody makes mistakes.
When I first got started in real estate investing, I definitely made some mistakes.
Nobody wants to make mistakes. But it’s part of the learning process, right? The bottom line is that it’s impossible not to make a few. We’re human. We learn from them and move on. But when it comes to real estate, investing for the first time without support can be difficult. And when you’re not careful, costly errors can create serious financial stress.
That’s scary to think about. But I’m here to give you some good news: With support, common investment mistakes can be avoided, and you can thrive. And that’s important because real estate investing can be a great way for physicians to build passive income, achieve financial freedom, and reduce reliance on clinical work.
Today I want to offer you the support I wish I’d received by exploring the most frequent rookie mistakes that beginning real estate investors make. We’ll look at poor planning, inadequate research, and underestimating expenses, to name a few. Knowing these mistakes upfront will save you time, money, and unnecessary headaches as you start your investment journey.
I want you to make informed, strategic decisions and build a real estate portfolio that supports your long-term financial goals. Use real estate to rocket your financial health and build the life of your dreams.
Common Real Estate Investment Mistakes
Let’s face it. We’re busy. As physicians, we juggle a busy practice, clinical work, and administrative duties all while trying to make time for our family, friends, and personal interests. That means when it comes to something outside of our area of expertise, like investing, there’s a strong chance we’ll feel apprehensive in taking actionable steps because we can’t give it our full attention.
My advice is educating yourself as much as possible before diving into the real estate investment world. There are certain things you need to know as you take those first actionable steps toward securing your financial future through real estate investment.
To help you save your time and potential grief, here’s a list of the most common and biggest mistakes to avoid.
1. Not Having a Plan or Clear Strategy
Without defined goals or strategies, you risk making the wrong investments and missing opportunities.
So, first and foremost, you need to define your investment goals. Are you looking for long-term passive income? Short-term gains from fix-and-flip properties? A combination of both? Something else entirely?
What’s your budget? What are your expenses? How will investing impact your life? How much income will allow you to drop from five days to four days of clinical work? What is a “huge win” amount for you? There are a lot of important questions to ask yourself about what kind of real estate investor you want to be.
I know what you’re thinking: “Peter, because I’m a beginner, I’m not sure what I want or what’s out there.” It’s a wonderful problem to have because there are resources you can utilize to help guide you. Consider joining our Passive Real Estate Academy to learn about all of the ways in which, aligned with your financial goals, you can invest in real estate to generate passive income.
Why do you need to set goals? It helps to be absolutely clear with yourself. Here is an example of a clear goal: “I want to make $10,000 of passive income within five years.” Because this is a clear goal, you can reverse engineer that. It’s not a nebulous notion like “I want to make more money” that doesn’t give you the ability to start planning.
When you define your investment goals, it will give you a clearer understanding of what real estate strategy you should choose. You can then identify your target property type—syndications, REITs, property ownership, etc.—the rental income you’re looking to receive, your investment expectations, and an exit plan.
When planning your style as an investor, you should also consider unexpected scenarios. What if market conditions change? What if you need to exit the investment sooner than you expected?
Get crystal clear with yourself. Otherwise you’ll be constantly zigzagging in the wrong direction.
2. Poor Market Research and Ignoring Local Market Dynamics
Before pulling the trigger on an investment, conduct thorough research on the property itself and the local market. Know the property values, what contributes to differences in property values, rental demand, and vacancy rates in the area you’re considering. These are baseline metrics, but you could go further.
For example, understand the demographics of potential tenants. What type of tenant seems to populate the area you’re looking at? Families? Students? Vacationers? Different types of tenants carry different levels of risk and demand for your time. Make sure the tenant options align with your goals, and make sure your property aligns with their needs.
And don’t overlook the possible impacts of local regulations and laws. Zoning laws, rental regulations, and development plans can significantly alter the outlook of an investment.
If you don’t learn how to vet deals, an otherwise “solid” investment can lead to financial loss.
3. Skipping Due Diligence and Making Emotional Decisions
A lot of the hard work in real estate investment is done upfront. That means you need to make sure you perform detailed due diligence. If this is the first time you’ve run into the words “due diligence,” then I encourage you to connect with one of our many communities to get a better understanding of what that looks like.
In short, it means always scheduling inspections, legal reviews, and title searches to uncover any issues before you buy. Is the building of the targeted property partially on an easement? A title company discovering that would transform the viability of the investment opportunity.
You also want to avoid any emotional decision-making. Don’t buy property based on excitement or personal preferences. Stick to a sound investment strategy focused on profitability. Otherwise, emotional attachments can lead to overpaying for properties or making unnecessary improvements that don’t enhance value.
Failing to uncover hidden issues or being overly attached to a property can have long-lasting and negative financial consequences.
4. Underestimating Expenses and Inadequate Financing
There are a lot of ongoing costs that don’t, but should, make the first round of due diligence math. Things like repairs, maintenance, property taxes, insurance, and unexpected expenses (like replacing a furnace) must be part of your financial planning.
These are important considerations because they often determine the amount you offer for the investment property. And in most cases, you’ll need the support of the bank to make an offer. So if you don’t calculate the ongoing expenses properly, you could be getting a loan from the bank that won’t cover the full extent of the investment. That means you’ll have negative cash flow (paying out of your own pocket to keep the investment afloat). That’s not a good situation to be in.
Financing is a crucial part of real estate investment, and there are additional financing mistakes to consider. You don’t want to rush into a high-interest loan or settle for poor terms. Shop around for the best financing options and consider fixed-rate mortgages for stability.
Real estate is about cash flow, and you want a positive cash flow. When you don’t fully understand the costs or approach financing inadequately, you can jeopardize your investment’s profitability, leading to cash flow problems or a loss on the investment.
5. Overpaying
Avoid overpaying by comparing recent sales in the local area. Don’t forget: Keep emotions out of the bidding process. Stick to the math of your due diligence to ensure that, if your offer is selected, the price you are paying aligns with a sound investment plan.
This can result in a lot of your offers being rejected, and that’s okay. Be patient. There will always be other opportunities.
Keep your offers solid by staying aligned with local trends. Research future development plans and changes in the neighborhood that could affect property values and tenant demand.
Overpaying for a property or ignoring key local factors can significantly reduce your return on investment.
Continue Your Education
Real estate investing can seem overwhelming at first. But learning as much as you can and doing your due diligence will set you up for intelligent investments and financial success.
The best place to start is with a detailed investment plan of your goals, financials, and strategy. Reach out to colleagues and your network of seasoned investors to learn all you can. If you don’t have a network yet, join one of our many communities, such as our Leverage and Growth Accelerator Community. There, like-minded individuals are happy to help and are focused on growth, contribution, and tangible steps toward financial freedom.
And although I mentioned it earlier, I want to remind you about our Passive Real Estate Academy. Wherever you are in your journey of learning, our 3-month comprehensive course will give you the roadmap and initial investment plan needed to go from novice to successful investor.
What makes this course and coaching program unique is that it is designed and led by physicians just like you. They understand where you’re coming from, what reservations you have, and what knowledge gaps to fill. It will help you create and scale your real estate portfolio. And we do it with you. Join today to gain financial security through passive real estate income. It’s time to take back control of your time and create your ideal life.
Until we see you next, we hope you continue taking actionable steps toward financial freedom. And we hope to support you on that journey. Thanks for taking the time today to visit us here at Passive Income MD!
Peter Kim, MD is the founder of Passive Income MD, the creator of Passive Real Estate Academy, and offers weekly education through his Monday podcast, the Passive Income MD Podcast. Join our community at the Passive Income Doc Facebook Group.
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