6 Reasons Beginner Real Estate Investors Fail (And How To Avoid Them!)

Most beginner real estate investors fail before they even get their first rent check. I know, I have been in real estate for over 15 years and I have watched this happen over and over again. So I can tell you right now, these six mistakes, they will kill your deal, they will kill your bank account, and they will kill your confidence. Most people who fail at real estate never really should have bought real estate in the first place. They either picked the wrong strategy, did their numbers completely wrong, or rushed into a deal and it cost them big financially. So if you're thinking of buying your first or even your next rental property, I need you to listen up because once you sign those loan docs, you will own all of the consequences. And if this video even helps you avoid one bad deal, please like, subscribe, comment, and do all the things. So let's walk through the six reasons why new real estate investors fail and how to avoid every single one of them. If you buy rental properties the right way, in the right neighborhoods with the right plan, you can change your entire future in just a few short years. And that's exactly what happened to us. We were able to find financial freedom with just a handful of quality long-term rental properties. They bring us in six figures annually, not much work, and have led us to a multi-million dollar portfolio. See, I work really hard for my down payment money, and I know you do too. I don't want you to make huge mistakes and regret buying a property. So let's break down the six reasons why beginner real estate investors fail. Number one, they choose the wrong strategy. I don't care what you saw on YouTube shorts, real estate is just not a get rich quick. It's not passive in the beginning, and it's definitely not forgiving when you mess up. Most people that I know jump into real estate because they're watching HGTV, watch people flip houses, they hear about get rich quick and using hardly any money doing the BRRRR method. They wanna run Airbnbs and make that their full-time gig. And hey, those strategies can work, but only if they fit your time, risk tolerance, and your financial reality. Let me tell you a story about what happened this week. I talked to a woman who got pulled into a really expensive coaching program under the promise that they would help her quit her job quickly building this huge portfolio. But the problem was this lady had a full-time job. She couldn't answer the phone during the day. And the entire business model of this coaching program to help her quit her job super fast was built on her shelling out thousands of dollars on marketing campaigns and taking leads and inbound calls all day long, which she could not possibly do while she was at work during the day. And they didn't vet her properly. She didn't even have enough funds, not only for a down payment, but the thousands of dollars needed to push out these postcards weekly. So now she's burnt out. She spent tens of thousands of dollars on coaching programs and marketing mailers, and she still hasn't bought a single property. So before you do anything in real estate, you really have to ask yourself these questions. What's my risk tolerance? How much cash do I actually have to invest? And do I wanna be hands-on or hands-off? Do you have time during the day to dedicate for a second full-time job as a real estate investor? Or are you a busy person with stuff in your life and you can't take on an extra full-time job to invest in real estate? Because real estate investing isn't a one-size-fits-all. Flipping might be better suited for someone that has tons of cash, a lot of renovation experience, and a lot of time to dedicate to it. And Airbnbs, they're really popular, and they might be for people that have a high risk tolerance and tons of income to float costs in case times get bad. But if you're a busy professional, you have a job, you've got a freaking family, you probably need a real estate investing strategy that isn't going to blow up your life, or one that is super high risk where you could just lose it all, making the wrong decision. For me, I'm the second person. Our family is a busy professional family with a family who's low risk and not tons of time. I've got kids on multiple sports and music lessons. We homeschool. I don't have time to do real estate full-time. So for me, doing buy-and-hold long-term rentals using the cake method is what fits my lifestyle the best. We buy long-term rentals in quality neighborhoods. We don't want any slums. We don't want any high-risk investing. Just want good homes with good tenants. I want tenants that pay month after month without having the need to call me for anything. And I want my properties to grow in value over time. Is that too much to ask? I even self-manage and I rarely hear from my tenants all year. I didn't want to create another job for myself. I've already got too much going on at home. I wanted to keep being a stay-at-home mom. My husband liked his job. We just wanted low-risk investments that would grow steadily over time. And I wanted a strategy, personally, that didn't take over my life. If I had chosen the BRRRR method just off the whims, I saw it online, or used a lot of creative financing strategies that just gave me high anxiety, we would have made the wrong choice. Spending all our time cold calling, sending out mailers, posting bandit signs, doing full rehabs when we didn't have the experience. I really wanted to avoid all that. So pay attention to what all the investing strategies have lined up for you. And pick one that fits your lifestyle, one that fits your risk profile, and one that you can afford. You do that, investing just gets a whole lot easier. And here's what nobody tells you when you're starting out. Not all loans are created equal. So this brings us to number two. Newbies take on the wrong kind of debt. Most investors, they just look at the monthly payment. The lower the payment, the better. That's all they look at. And unfortunately, that's the wrong way to go about it. I see beginners signing up for 5-1 arms, 10-year loans with balloon payments at the end, even commercial loans. They barely understand because some guy online does it. And they're trying to do this because they're trying to squeeze in a deal that they think that they can barely afford because it's going to be the salvation for their future. But what happens when that adjustable rate kicks in after five years? What happens when the loan terms due after 10 years? What if your property value isn't worth the money that you paid for it in the beginning, and now you can't even cash out refinance or sell the property because it isn't worth more than what you bought it for originally? You could lose the property. You will definitely wreck your credit if you go into foreclosure. You could wipe out every single dollar that you worked so hard to save. And why? All because you didn't fully understand your loan. I've seen it happen in real life. Investors get into great properties, but with really big debt. Five years later, they're stressed, they're freaking out, and they're underwater. So if you're going to invest in real estate and you're going to use debt, which I do recommend, you need to use it wisely. For example, I teach a lot of students how to use HELOCs. HELOC stands for Home Equity Line of Credit, and they use these HELOCs to buy their first or second rental property. It's a really incredible tool. You can access equity in your primary residence where you live without taking on a new mortgage and use those funds to put down on a new rental property. I've even had students get such a huge HELOC that they're able to make offers all cash with the equity from their home on investment properties. But using these HELOCs only if you know how and when to use them. You need to know your exit strategy, you need to know your repayment plan, and you need to run your numbers like a business. If you haven't seen it already, go watch the video that I did on how to use HELOCs the right way for investing properties. I'll see if I can put a little thingy up here. If not, it's definitely in the description below. Using debt's really important in real estate, but don't ever forget this. Using good debt accelerates your path to wealth, but bad debt, that's gonna put you in a financial hole. And if you don't understand your financing, you're not really investing, you are gambling, and you might as well just take those funds to the strip in Las Vegas. So let's move on to number three, chasing the cashflow. This is the classic beginner's trap. They look at two properties, one of them's in the rougher part of town, but oh my God, it cashflows 400 bucks a month. The other one is in a better part of town, but oh, it only cashflows 150. But guess which one they pick? The better cashflowing property, of course. Why? Because that's what everybody says to do online. Pick the better cashflow, cashflow, cashflow, gotta have cashflow. But guess which one of these properties is gonna give them more headaches, more expenses, and then later on down the line, full-on regret. Yeah, it's the one they bought for cashflow. And this is one of the most expensive lessons that new beginner real estate investors learn. They chase the bigger short-term return without realizing that they're actually setting themselves up for the worst financial pain. It's easy to get excited about spreadsheets, but what the spreadsheets don't tell you, and this is what you can't figure out when you're running the numbers, is how often you're going to be replacing tenants, how many times your air conditioner gets stolen, how fast the neighborhood's declining, or how hard it will be to sell your property when you're ready to exit. Some investors call these properties high cashflow properties. I call them money pits. Yes, they make a lot of money on paper in year one, but over the course of five years, they cost you so much more money in time, stress, and hidden losses than you would ever realize. So let me tell you something most YouTubers won't say. Not all cashflow is created equal. Cashflow from a well-located, well-maintained, tenant-friendly property, that's the true wealth. Cashflow from a bad neighborhood, bad property, that's borrowed time. Every single rich old guy investor that I know, they dumped those D-class, high year one cashflowing properties we just talked about as soon as they realized what the heck was really going on with long-term rental properties and where the real money was made. Now, they only invest, only invest in A, quality rental properties, B, quality rental properties. And if you don't know what I'm talking about when I say A, B, C, and D rental properties, I'll link another video that describes A, B, C, D class neighborhoods in detail because it is the most important thing that you need to understand before you start your journey with real estate. Heck, I use the CAKE method to invest in long-term rental properties, right? You've probably heard me say that before. And the C in CAKE stands for Choose Equality Neighborhood. It's the most important thing you can do. See, I don't buy for the highest dollar performing year one. I buy for a long-term performance and gain. I want stable tenants. I want predictable appreciation and low turnover. And I want an asset that gets more valuable the longer I own it, not the other way around. So sadly, most new investors, they just look at the spreadsheet and they just look at year one numbers when that's really not what they should be looking at. They aren't realizing they're setting themselves up for failure. And it's one of the biggest mistakes that new investors make when starting out. I talked to some guy over Instagram DMs a few months ago, and he told me he spends $4,000 to $5,000 every single time he turns over a property. I pay a few hundred dollars. That guy's screwed up really bad. And now he owns properties that he can't easily get rid of. And he's shelling out more money every year than he's making in cashflow. Would I love 500 bucks a month cashflow from day one? Sure I would. And I will tell you, I do get that now with my properties, but I'm an experienced investor with a lot of knowledge on renovations. I do heavier rehabs now than I did in the beginning. I have more cash invested into my properties because I know what's truly going to set me financially free. New investors should be looking for the best property they can afford in the best neighborhood they can afford to buy in. You should be excited to take that two to $300 a month steady cashflow in year one because a property in a neighborhood that appreciates is going to give you more rental return and more gain over the next five years than one of those crappy little properties in the worst neighborhoods that you can find, even though it looks like they're going to cashflow more. I can promise you that they won't. So get your reps in, buy good deals, buy quality properties. You'll get better deals and more amazing deals down the road the more properties you buy, but don't compromise on the neighborhood. And that's what beginners miss when they chase shiny numbers over a smart strategy. Okay, this one might be hard to hear, but I'm going to say it anyway. Number four is they aren't financially ready. Some people just aren't financially ready to start investing in rental properties yet. And that's okay, as long as you realize that before you sign over the papers and you get yourself involved in something that you really can't afford. Because when you buy a house that you're not financially ready to buy, every little expense feels like an emergency. Tenant calls about a broken appliance and suddenly your heart rate jumps. You see a roof estimate and you think, well, there goes my cashflow for the next six months. Or you miss one month of rental income and now you're behind on your own mortgage. That's not investing. But I see this all the time. People get so excited about wanting to invest in real estate that they just realize they can't jump the gun. They're just not ready. You'll know you're this person if you don't have an emergency fund, if you're maxing out the budget just to make these numbers work, if you're not leaving any margin for repairs or vacancies, and you tell yourself that rent's going to cover any problems and you won't have to worry about it personally. But let's be clear, rent might cover it. And sometimes it does until it doesn't. And when you don't have a massive portfolio that can take the wins and losses all together, and you're the one personally responsible for any potential loss in year one or two with a small amount of rental properties, your bank account, you personally are the one that has to pick up the slack. So if you can't afford to invest in real estate, wait until you can. I always tell my students, before you invest in rental properties, your finances really need to be stable. You don't need 100K in the bank, but you do need 30 to $50,000 to get started, three to six months of personal emergency savings, some reserves set aside just for the property, and a plan for how you're going to manage the property. And if you don't have that, I'm not saying you can't invest, I'm just saying you probably shouldn't invest right now because real estate should give you peace of mind. You should feel excited to close on your first rental property, not anxious every time you check the bank account or worried when your tenant doesn't pay rent on the first and it comes on the second. You're worried how you're going to pay for your own mortgage. When you're ready, you'll feel it. Let's get into number five. Newbies forget about the most important team member, and it's one of the biggest mistakes that they make. You want to know who has the most control over your property's performance. It's not you. It's not your property manager. It's not your real estate agent. It's the person who lives in your property 99.9999, 100% of the time, that's your tenant. They're the ones that live in your asset 24 seven. They're the ones that have the ultimate control over what happens to your property on a daily basis. They determine whether the rent shows up on time. They determine whether the place is cared for and whether you're going to sleep well at night or you're one phone call away from disaster. And yet this is the one step that most new investors just rush through or completely forget. They post it for rent listing. They get a couple inquiries. They pick the first person who seems nice. They skip the credit check. They don't really double check the income. They don't run background checks. They just found someone that they like and they're ready to start collecting rent, worried that they might not find someone soon enough before their mortgage payments due. But here's the deal. One bad tenant can wipe out a year's worth of profit or more. I know this from personal experience. I went to eviction court once and I stood in line with this lady and she told me she had 20 properties and eight of them she was filing eviction on. Eight out of 20, holy cow. At first I asked her where they work. So I'm like, well, maybe I'll want to buy them. And then she told me where they were located, what part of town. And I quickly said, nevermind. She had owned properties in the most gang infested areas in Memphis. I definitely passed on that. Tenants can destroy your property. They can stop paying and they can drag out that eviction process for months. They can create so much stress in your life that you wonder if investing in real estate is really a good strategy after all. We once rented to someone who met the income requirements. I double checked and they were nice. And I let one of the tenants stay when the other one moved out and the other one was the breadwinner. Within four months, she couldn't pay me. She started breaking the lease agreement. My property went from a pretty nice property to a disaster in less than a week. It took time, money, legal action. I know I got my first gray hairs from her. It was a disaster, a nightmare tenant. And that's when I learned that your tenant is your most important team member when it comes to real estate investing. Tenant screening isn't optional. It is foundational and paramount to your success. My entire investing strategy changed after that nightmare tenant story. I invented the cake method and I haven't looked back since. So when it comes to choosing your number one team member, right, your tenant, what do you look for? You always verify income. Don't take their word for it. Always pull a full credit report and look at the credit report, not just the score. Call their previous landlords, not the one that they're staying with now, the other ones before them. And look for red flags like evictions, bankruptcies, and being in collections for multiple things because they don't pay their bills on time. And here's a little tip. If someone needs to move in immediately, that's a huge red flag and just move on. You don't want somebody in your property who is in a rush and doesn't take care of their life. I've had tenants stay for as long as seven years so far. No drama, easy tenants, fixable repairs, low stress. That's real cashflow. That's the kind of win that never shows up on a spreadsheet but makes all the difference in your investing journey. Okay, number six. Newbie real estate investors make this mistake all the time and it's the one that costs them the most money right out of the gate. And it's that they underestimate their expenses on repairing the property and or they buy a money pit. If you're only running the numbers on the mortgage and the rent, you're really missing the full picture. I've seen people buy what they thought was a great deal only to get blindsided by a 10 or $8,000 HVAC replacement right out of the gate. Or buying a property that needs constant maintenance because they bought a property that was old and poorly maintained by the last owners. So here's what kills your highest returns. Ignoring the age of big ticket items like roofs, fences, driveways and air conditioners, not budgeting for those capital expenditures and not looking at the property through the eyes of your tenants. Your kitchen layout could be non-functional and your master bedroom could be too small for the average person's stuff. A lot of cheap properties are cheap for a reason. That's why I teach to focus on low risk properties in desirable areas with predictable expenses. It's not sexy, but it works. You don't wanna be chasing the biggest return that you could possibly see on your spreadsheet. You want to chase most dependable return. If this video saved you from even making one mistake, hit that subscribe button. That's all I ask. Subscribe so you don't miss the next one and drop a comment below and let me know which of these six mistakes surprised you the most. And if you're ready to get serious, to stop spinning the wheels and finally get this right, I can help you. I teach regular people every single day how to build long-term smart wealth through real estate. No hype, no shortcuts, just real properties with real cashflow and low stress. Let's keep building your wealth brick by brick.