I used to write my real estate investing blogs with a warning telling people that HGTV is not factual. Real estate investing is rarely as glamorous, and money is not as easy to come by as they make it seem on TV. But now, HGTV is not the only thing out there giving poor investment advice. Today I watched a viral TikTok video of a kid telling people how to make $1000 a day through real estate investing. It was very entertaining! It had millions of views. The problem: the advice was terrible. It wasn’t realistic in any way, shape, or form.

Today, I am going to share with you the story of my biggest real estate investing mistake. My hope? It gives you a dose of reality. I need to share with you the truth behind what can happen with real estate investing. Hopefully you’ll consider my story before following any tele-realtor or Tik-Tok influencer’s advice.

THE IDEA

I set out to create passive income by purchasing and renting residential real estate. Seems simple enough. All I had to do was buy houses and make sure my expenses were less than the rental income. Execute that and BOOM! I am basically a real estate mogul. The real estate market was hot at the time, making it seem even easier. Everyone was getting into real estate, loans were easy to come by, and home values were going up like crazy. An added bonus to the idea was that I’d also get a rapidly appreciating asset as part of this passive income endeavor.

That was one of the first mistakes. I assumed the recent rapid increase in real estate values would continue for years to come.

Mistake #1 – Buying at the wrong time.

We have mentioned in videos, podcasts, and other blogs (like this one) that you should NOT worry about timing the market when buying a home you plan to live in. But, when you buy a home for an investment, you must make sure the timing is right. The old adage of “buy low and sell high” is tried and true. My mistake was executing my real estate investing idea at the top of a market. I bought the real estate at a high, and didn’t care.

THE EXECUTION

I bought not one but two homes at the top of the market. Although I messed up the timing of the purchases, I did do my research in other areas. I meticulously combed through all the monthly expenses and compared it against market rental rates. I did the math and considered the mortgage payments, taxes, insurance, and even added a buffer just in case costs increased. Then I looked to see what other similar homes in the area were renting for and added another buffer just in case I was unable to get those rates. On paper, my math was great! There was going to be a positive cash flow without an issue and my passive income from real estate investments was about to happen! Or so I thought…

It took a few months before I was able to get both properties rented. That means I had to pay all the expenses on those properties without any income. Not that big of a deal though. I just made the payments and eagerly awaited the passive income to roll in. After just one month of getting a tenant in the property, the tenant had trouble making the payment. I did not account for this. For some reason I assumed all tenants make payments on time every time.

I had to keep making the payments on the house as I worked through the tenant’s payment issues. On top of that are unexpected expenses associated with trying to get the payments to come in. I had to get legal documents drafted and filed, clean the property after that tenant moved out, and then wait several more months for a new tenant.

The bottom line–this recurring theme of unexpected things made a big impact on the success of my investment.

Mistake #2 – Not building enough margin for the unexpected.

Sure, I put in a buffer on the monthly expenses and the monthly income. That was great! But I did not take into consideration it would be next to impossible to get income on the property 12 months a year without any issues. I also did not consider other unexpected expenses associated with keeping property. In reality I should have only assumed income 80% of the time and added an additional 20% to my monthly expenses.

HOW IT ENDED

Again, unexpected things became a theme with these properties, more than just tenants losing jobs and issues with home repairs. The reality set in–I did not build in enough margin. I needed to sell. The income wasn’t consistent, it was not passive, and year in and year out the properties were costing me money. I had to get rid of them.

But that is okay because the real estate market was hot and I should be able to sell the properties for more than I bought them for, right? Wrong. By the time I was ready to sell, the market had turned and home values plummeted. Not only was I going to have to eat the NET negative cash flow from the time I had the properties, I was going to take a loss on the value of the assets.

 Mistake #3 – Not considering the time.

I thought this would be passive and didn’t consider the amount of time managing these properties would entail. Nothing could really be automated. Sure, I could hire a property manager, but as mentioned above, the cash flow was already an issue. Hiring someone to come in and take this management off my hands would only hurt that cash flow more. So, I had to carry the burden and responsibility. It was a major disruption to my life.

Selling the properties was a hard pill to swallow, but it was the right pill to swallow. Selling got that monthly cash flow burden off of me, and allowed me to learn some valuable lessons so I could make the next several real estate investments a success. More importantly, it freed up my time.

Honestly, I was okay with the financial issues associated with this mistake. There is financial risk involved with all investments. But the way these properties stole my time was heavy. I hated it. And for that reason alone this investment was a huge mistake.

MY RECOMMENDATION

Learn from my experience. Do not buy real estate for investment during a hot market. Make sure you build in enough margin into your calculations – unexpected things will happen. And make sure you understand how much time this commitment could take from you.

In my opinion, the only truly passive investing is done by purchasing various funds. Mutual Funds, Real Estate Funds, and more are a whole lot easier to deal with and create a more ideal lifestyle.

Like the TikTok influencer, I was young when I made this mistake and I am grateful for what I have learned.

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