Diving into real estate investing for the first time can feel like jumping into the deep end without knowing how to swim. Most new investors encounter roadblocks that could have been avoided with a little more insight and planning- but don’t worry! We’re here to help. Check out these 5 common mistakes first-time real estate investors make and how you can steer clear of them.

1. Underestimating the True Costs of Owning Property

One of the most common mistakes I see new investors make is only budgeting for the purchase price and mortgage payments. It’s easy to overlook additional expenses like property taxes, insurance, maintenance, and occasional vacancies. For example, one beginner investor might buy a property in a growing neighborhood, but didn’t factor in the high property taxes. The deal seemed profitable at first, but those extra costs seriously ate into their profits.

How to Avoid It: Before purchasing, take the time to estimate all potential costs—not just the obvious ones. A good rule of thumb is to set aside about 50% of your rental income for operating expenses. And always have an emergency fund for unexpected repairs. You’d be surprised how quickly a broken HVAC system or a leaky roof can cost you.

2. Rushing into the Wrong Market

Another one of the common mistakes first-time real estate investors make is fall into the trap of rushing into a market they don’t fully understand. Real estate markets can vary dramatically from one region to the next. Buying in a hot market might seem like a surefire win, but trends can change quickly. For example, you might buy a property in an up-and-coming neighborhood only to watch the area lose value when a major employer relocates.

How to Avoid It: Do your homework. Study market trends, employment rates, population growth, and rental demand. Go beyond the buzz and dig into the numbers. Talking to local real estate agents and attending market-specific networking events can also provide insights that may not be immediately obvious.

3. Over-Leveraging Your Finances

Using borrowed money (leverage) to finance an investment is a powerful tool, but too much of it can land you in hot water. It’s tempting to take on several mortgages with little down payment, but this can leave you exposed if the market shifts or if your property stays vacant for too long. I’ve seen first-time investors stretch themselves too thin, only to struggle when interest rates rise or unexpected repairs come up.

How to Avoid It: Leverage can be your friend, but only if you use it wisely. Aim for a loan-to-value ratio of 75% or lower, meaning you’re putting at least 25% down. Avoid taking on too much debt too soon, and keep a close eye on interest rates, especially with adjustable-rate mortgages.

4. Not Planning for an Exit Strategy

Many new investors think only about getting into the market and forget to plan for getting out. Life changes and markets fluctuate, so it’s important to have a solid exit plan. Whether it’s selling, refinancing, or converting the property to a different use, you need to know your options. For example, you might buy a fixer-upper intending to flip it, but halfway through, the market dips, and you’re forced to rent it out instead. Because you weren’t prepared for this, you had months of negative cash flow.

How to Avoid It: Always have a Plan B. Consider potential exit strategies before you even close on a property. Think about whether you want to hold the property long-term, flip it, or even use it as a short-term rental. Make sure your financing and personal financial situation support these options, too.

5. Neglecting Property Management

Managing a property takes time, effort, and knowledge—more than most first-time investors realize. From handling repairs and collecting rent to dealing with tenant issues, property management can quickly become overwhelming. Some enthusiastic new investors think they can handle everything on their own, but between a full-time job and family obligations, the property can easily start to to slip through the cracks. That leads to vacancies and even potentially a few costly repairs that went unchecked.

How to Avoid It: If managing a property isn’t something you have time for, don’t hesitate to hire a professional property manager. Yes, it costs money (typically 8-10% of the rental income), but it can save you stress and protect your investment in the long run. If you do decide to self-manage, make sure you’re familiar with local landlord-tenant laws and have systems in place for maintenance and communication with tenants.

What do you think about these 5 common mistakes first-time real estate investors make? Can you think of other ones you’d add to this list?