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Today brings us to our last Pitfall of Real Estate Investing. For a final review, we have outlined Pitfall #1: Falling in Love, Pitfall #2: Over-estimating ROI, Pitfall #3: Different Strokes for Different Folks and Pitfall #4: Saving for a Rainy Day.
Lack of Management Systems: Often one of the biggest challenges a new investor faces in real estate is the proper management of the tenant and the property. There are many aspects to consider when managing a property and having appropriate systems and contracts is essential. If you are disciplined and willing to have the hard conversations with your future tenants (because you will have them) then managing your own property can really save on costs. However, while it saves you money to manage your own property, the money you save can quickly be lost. Proper contracts, knowing the rights of tenants and getting non-paying tenants out ASAP are just a few aspects of proper management.
A small flaw in any of these systems can result in substantial losses. For example if you don’t send your Pay or Quit Notice on the 5th day and start the eviction process on the 10th day you could easily lose a month of rent from a non-paying tenant. I have spoken with many self-manage landlords that are slow on the eviction process resulting in a lost month or two of rent. Once they finally get to court they find that their lease is not completed correctly resulting in additional lost time and money.
Evaluating your management systems and being truthful with yourself about your ability to self-manage is important. As I previously wrote in Do Less. Make More., it may be more economical for you to hire a property management company to handle these duties allowing you to focus on things that can bring you higher returns. A few small mistakes can easily add up to what it would cost to have someone else handle the management for you. Hiring a property management company can possibly save you money over time versus costing you money. By eliminating this headache you will most likely be motivated to buy more rentals than if you were taking every call about clogged toilets!
I really hope that you were able to take my 5 Pitfalls of Real Estate Investing and apply them to your current or future investment plans. Real Estate is full of opportunities but with all great reward comes risk. The best way to eliminate the risk of investing in real estate is to educate yourself on the process and potential mistakes. Although this is just a brief list of what to avoid I would be happy to answer any specific questions you may have. Please leave a reply below and I will get back to you!