Five Pitfalls of Real Estate Investing You Should Know

There’s always been some kind of starry-eyed dream around the idea of making a big payoff in real estate investing. I’d say about half my clients have floated a real estate idea in one form or another to me over the years.

I think it’s because of the “cocktail party” effect (or “BBQ effect,” if you aren’t the cocktail party type. I’m not). The stories are juicy. They are hard to ignore: “Yeah, my buddy Jim made $500,000 on an apartment complex in Austin. He’s asking me if I want in on his next deal.” I have a number of friends still living Austin, TX from engineering days at Dell Computers, and the quote above is based on a real conversation.

I mean, it makes sense, right? You invest a bit, hold onto the property for some random length of time, then walk away with even more money when values rise. I think it’s also appealing because it’s a physical asset. Most investors are familiar with homes, apartments, etc. and you can go see it if you want.

But before you get sucked into the latest real estate investment scheme, take a deep breath and open your eyes to these cold hard facts about real estate investing.

1. Real Estate Is Not Like The Stock Market

Here at Pathway Financial, we don’t subscribe to the idea of timing the market. I’ve harped on this time and time again, but it’s still way too popular for its own good. Unfortunately, the concept of timing your buys when the market is low, and selling when the market is high and getting caught up in the market hype, does not always translate to the real estate arena.

Real estate can be profitable with patience. Homes grow in value over time, not overnight. You pay so many fees when selling property that even if you are making a bit of profit from built-up equity, you are paying out thousands when you sell. The faster the turnaround and the more times you do this, you are throwing away tens of thousands to fees that you could’ve invested better.

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