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5 Reasons R.E Investors Can Still Fail After Years In The Game
You’ve probably have heard or witnessed this story first hand.
A real estate investor with years of experience under his belt can suddenly go under without any warning. And he used to have enough skin in the game to retire many times over. A portfolio that used to be the envy of everyone is now in negative territory.
How can a veteran investors with years of experience in rental property investing and landlording suddenly have bankruptcy lawyers knocking on his door… while people from the bank are talking to him about foreclosure procedures?
These stories are not unique. In fact, they happen more often than you think. It’s just that we tend to only pay attention to stories of success and conquest and block out stories of failure and sorrow.
Just talk to an active flipper and you will realize that at least 90% of his acquisitions are made from sellers who have been in the game for a longer time than him.
So why do rental property owners with years of experience under their belts still fail?
1) Taking on too much risk
It is so easy to get ahead of yourself and start biting off more than you can chew.
In fact, when you start closing $100,000 deals regularly, you will start finding it boring and commence looking for deals in the $200,000 range. The leveling up cycle repeats itself.
Even more risky is when you start believing in your own hype and midas touch that you start doing more deals concurrently assuming that everything will turn out well.
This spread your financing and focus too thin… leaving you wide open for a sucker punch from the market.
Don’t get me wrong. There will always be associated risks with any investment. But taking on too much of it out of arrogance can be suicidal when you are at the wrong place at the wrong time.
When you have been doing rental real estate for years, the biggest reason how your empire can come crumbling down is almost always down to over-leverage.
You can never totally eliminate risks in this business.
But with the right people with the right skills around you, and approaching your investing activities with a pragmatic mindset, you can greatly minimize your risks.
2) Not enough knowledge
It would be wrong to say that long-time investors have no knowledge. It is rather, that they don’t have enough knowledge and make little effort to get more educate about the industry they are in.
Sit might be surprised that how many landlords get so comfortable with their situations that they rest on their laurels and fail to improve themselves to enhance their operations.
An early success can cause people to get complacent on future deals. Igniting the cardinal investing sin of hubris.
To avoid stepping on this landmine, you absolutely must continuously learn more about your business in general and local factors affecting your property holdings.
Read books to learn from investment superstars, join networking groups to learn from each other, subscribe to industry newsletter to keep up to date with local information, or even borrow some books from the library, etc.
Learning is a lifelong commitment in any business.
Nobody will ever know everything in real estate. And that includes you.
3) Lack of analysis
This can be unbelievable to some people. But many property investors who have been in the business for years still don’t use proven financial ratios and analysis methods to calculate the attractiveness of investment opportunities.
Go ask 3 investors about the methods they use to value an investment and you will get at least 1 who cannot name any.
This is no joke.
And it is astounding at how people can make decisions going in to the hundreds of thousands in value without proper calculations and numerical analysis.
They just “feel” that it’s a good deal and buy a house.
They then wonder why such a good deal is still not producing positive income years later.
Maybe because… it’s not such a good deal after all?
4) Getting wrong advice from the wrong people
There will always be people who thinks that they are the best at what they do and that everyone else are just uninformed rookies who know zilch.
This unhealthy environment is especially present in the world of property investments.
Just give it a try. Go attend a networking session for real estate investors and you will find out that every individual thinks that the are the next Donald Trump in the making. They see everyone else as losers and they are the only ones who know the game.
The danger lurks when you start believing the hype that these people champion about themselves.
Instead of relying on the good old investing philosophies that have served them well over the years, they get pulled into the illusion that radical investors proclaim. Then start thinking that these radical investors hold the key to quick easy money that have eluded them all these years.
One wrong move. One wrong step into uncharted territory. And they get pulled into a whirlpool sucking their finances dry.
By the time they have realized in no uncertain terms that they have relied on the wrong advice, it is already too late.
The tub is running dry already.
5) Allowing the business to own them instead of the other way around
You’ve probably heard this one over and over again. Yet many landlords still fall into this trap over and over again.
You might start off spending a lot of time doing a lot of stuff yourself. Using your own time, effort and resources.
That is perfectly fine and part and parcel of development. But you have to constantly evolve and transform your business operations into one that is capable of running itself with systems and protocols.
This is the hallmark of any successful business.
Every rental property investors should embrace business traits to better enhance their operating activities.
See yourself as the CEO instead of the operations manager. And setup your business to support you as the head of the business instead of the executioner of processes. Only then can you truly free yourself of the chains of real estate.