Why do beginner investors lose money investing in rental real estate?
The answer is most investors don’t understand: that rental real estate investing is like a business
Just like you need to stick to certain rules in business you also have keep to some fundamental rules in real estate investing.
I know this for sure.
As a novice real estate investor I defied these rules of rental property investing.
I paid dearly for my folly, losing over $50000 in my first rental real estate investing deal.
By now you might be thinking, “How is it possible to lose money investing in real estate? “
Yes its possible to lose money in real estate investing.
Many believe that you cannot lose money investing in real estate.
I was one of them…
I invested my money like a gambler in real estate.
And lost money from the first rental property I invested my money.
I came close to declaring personal bankruptcy.
The only saving grace I had from going broke was having the courage to… admit making a mistake… and letting go
It took 5 years to admit failure and another 5 years to pay off the debts I owed.
These lessons I learned from my first rental real estate investing failure are the ones you are going to hear
You can choose to ignore them at your peril.
Or you can choose to learn from them.
If you choose to learn from my mistakes…
then you’ll likely build wealth from investing in real estate.
One of the common rental real estate investing mistakes you can make is…
Investing in real estate with no margin of safety
The mistake you can make in rental property investing is invest in a property that will not pay for its expenses and at the same time generate income.
Why? Most of the time you’ll likely borrow money to invest in rental properties. Except you are buying the property with cash
This means that you’ll have to make interest payments towards paying the mortgage on the property . In addition you have to pay for associated expenses related to owing the property.
Therefore the rental property you acquire must have the potential to generate enough rental income.So that can you can pay its recurrent expenses and earn a decent return on your money
How can you avoid this mistake in rental real estate investing?
The answer is simple. When you want to buy a rental property, buy a property that you have a margin of safety.
That is you buy a property at a price that the rental income-can pay for the carrying cost of owning it- and at the same time generate income
