5 Mistakes I Made When Buying My First Investment Property

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Avoid my mistakes when buying an investment property

There are a number of mistakes that can be made when buying an investment property. Luckily you can avoid some of the ones I made when I purchased my first rental property. It has been just over a year since I bought my first rental property, a duplex. That purchase has given me time to reflect on some of the lessons I learned. I made plenty of mistakes. Luckily they didn’t blow up my finances or my real estate investing career, but I wouldn’t want to repeat them. For the newer real estate investors, I hope my experience will shed some valuable insight for you. Below are the top 5 mistakes I made when buying my first investment property.

#1 Mistake is Time

Financial Glass - Time

The first mistake I made when buying an investment property is thinking the process would be quick and simple. I had it in my head I’d find the right property quickly and move fast. But I didn’t understand where we were in the market cycle and that good deals were harder to find. The other caveat is I didn’t really know what a good deal looked like if/when I came across it. Simply, I had not looked at enough properties to know what good looked like.

Finding the right property may take you time especially if it is your first deal. Understand that you won’t be able to make as quick decisions as you would if this was your 100th deal. Set your expectations early and factor in that additional time. One of the mistakes you want to avoid is buying the wrong investment property because you got impatient.

#2 Picking the Type of Property & Location

Avoid these mistakes when buying an investment property - location

I struggled to truly identify what type of real estate investing I wanted to pursue. I knew I wanted to invest in cash flow. Unfortunately, I saw my family make mistakes investing solely on appreciation during the bubble. Going into it I knew my one criteria is that no matter what I wanted it to put more money in my pocket each month then it cost to own. What I did not know was how many different asset classes exist. Real estate investors make money from residential – single-family and multi-family, commercial, section 8, new construction, and even more. There are strategies that work for almost every type of real estate asset and I struggled to find focus initially. When you set out to buy your first investment property be sure to quickly narrow your focus.

#3 Too many credit checks

Financial Glass - Amex Credit Card

Over the course of 15 months, I put in many offers and had 2 accepted contracts. Those both fell through during my due diligence period. In order to have a financing offer considered, I had to have a pre-approval letter which requires a credit check. At this point, I had been working with multiple mortgage brokers and companies in order to find a competitive rate. But I made the mistake of allowing each of them to pull my credit separately resulting in a large number of inquiries on my credit report.

The mortgage brokers told me that having multiple pulls in a short amount of time wouldn’t matter if you got a mortgage. I don’t know if that is true or not. But I didn’t have that experience. Perhaps it was because I had multiple contracts fall through that my credit was affected. When buying your first investment property be sure to avoid unnecessary credit checks from mortgage brokers.

#4 Knowing the numbers

Financial Glass - Retur on Investment

One of the top skills successful real estate investors have in common is understanding the numbers. When buying your first investment property being able to analyze a deal is crucial. You have to quickly understand what you can afford to pay, how much money to put down, and what the return on investment will be. I struggled to determine those numbers and had a very wide range for what good vs. bad looked like. I didn’t have a great system for calculating my numbers. In fact, I relied heavily on free rental property calculators I found on the internet and my own guesses. I could not tell you at the time what return or range of returns I bought the property. Nor what I was able to improve it through bringing in new tenants at a higher rental rate.

Be smart and ensure you know the numbers when you buy your first investment property.

#5 Power

You have the power to avoid these mistakes when buying an investment property

Going through the process I was super nervous, fearful, excited, and happy all at the same time. Making your first real estate investment purchase is nerve-racking and represents a big step that you may not be accustomed to. At the time, I didn’t realize how much I controlled in the situation. There ware a number of things from negotiating terms and closing costs to being able to exercise contingencies (if-then clauses). I controlled how quickly my financing paperwork was in order, how thorough the home inspection was, and how to conduct the closing.

Once the seller accepts your contract (assuming the terms of your contract allow) you have power over the due diligence and closing. I didn’t take advantage of all this power to clarify what I could control. In hindsight, I just flew by the seat of my pants and failed to leverage my power. You can avoid a sense of powerlessness when buying your first investment property through a proper contract

Wrapping up the 5 mistakes when buying an investment property

These are five areas I made mistakes in my first deal. I’ll go more in-depth into each topic area to show the errors I made and how you can avoid them. Buying real estate can be scary at first, but it doesn’t have to be. Learn from my mistakes and make your first or next purchase go as smoothly and seamlessly as possible. 

See each mistake in more detail!

Time
Property Type & Location
Too Many Credit Checks
Knowing the Numbers
Power

More real estate related posts also check out my Bigger Pockets profile!

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