reasons why real estate investors fail

[rob in cal]

     Reading about some of the great success stories out there on this forum of real estate investors and successful landlords is very inspirational.  I'm wondering though about the failures of real estate investors.  Why do some fail and others succeed. I'm guessing location, location, location  issues, plus maybe a run of bad tenants, too high of purchase prices etc.  I'd be interested in hearing about turnkey real estate failures as well.  What lessons can future investors draw from all this etc.?

[Kitsunegari]

I guess betting on the best-case scenario it's a common mistake, so not having a sufficient stash for staying afloat in case of sudden expenses or delinquent tenants.

[arebelspy]

Some off the top of my head:
1) Purchasing wrong
2) Poor tenant screening
3) Management problems
4) Letting problems "slide" until they become much more time and money than they should have been in the first place
5) Speculating on appreciation over cash flow
6) Lack of cash reserves for the inevitable maintenance/vacancies

And lack of knowledge around all of the above (not knowing what a good purchase is, not knowing how to deal with tenants, or find a good PM company, etc. etc.)

I'm sure others will add more good ones.

[Adventine]

Becoming overleveraged. Lots of people focus on the huge potential profits, especially when they see others making a killing, and take on unsustainable mortgages just to get in on the action.

[hoping2retire35]

Research

[Another Reader]

Greed.  Causes poor decision making and creates bad relationships with everyone involved.

[Bearded Man]

Some off the top of my head:
1) Purchasing wrong
2) Poor tenant screening
3) Management problems
4) Letting problems "slide" until they become much more time and money than they should have been in the first place
5) Speculating on appreciation over cash flow
6) Lack of cash reserves for the inevitable maintenance/vacancies

And lack of knowledge around all of the above (not knowing what a good purchase is, not knowing how to deal with tenants, or find a good PM company, etc. etc.)

I'm sure others will add more good ones.

This. Also not having an air tight lease.

[GrayGhost]

5) Speculating on appreciation over cash flow

Among my coworkers, it's this above all else. There are a few neighborhoods in our area that are booming, meaning $50k+ appreciation in the last year or so on $300k houses, so people are thinking that they're really smart and are $50k richer... in my mind, profit isn't profit until it's realized and the money is in your bank account. Apart from that, I highly doubt that there's much more appreciation to be had in the area.

Another big problem is that people aren't strict enough about cashflow. I know plenty of people who see a $100 month "profit" after principle, interest, and taxes as a good thing, but they're one major repair away from losing a year's worth of money. And then they'll always say, well, I'll take a day off, fly over and fix it myself, but there are massive costs to that too. Argh!

[Awenthomas]

Hi,
As per my opinion, the most common reasons to fail real estate investors are

1. Getting too theoretical
2. Bad Credit
3. Inability to Identify Priorities
4. Not staying on their plan
5. No Real Estate Network

Thanks!!

[arebelspy]

2. Bad Credit

What do you mean by this?

[Johnny Aloha]

Some off the top of my head:
1) Purchasing wrong
2) Poor tenant screening
3) Management problems
4) Letting problems "slide" until they become much more time and money than they should have been in the first place
5) Speculating on appreciation over cash flow
6) Lack of cash reserves for the inevitable maintenance/vacancies

And lack of knowledge around all of the above (not knowing what a good purchase is, not knowing how to deal with tenants, or find a good PM company, etc. etc.)

I'm sure others will add more good ones.

This. Also not having an air tight lease.

And also having a personality that is not suited for direct RE ownership. 

Two quick examples:

1) Similar to owning stocks, it's likely your "value" will rise or fall periodically (based on nearby similar sales) - which causes many "investors" to panic.

2) Recurring maintenance or repairs might lead to RE fatigue for some.  Say you have a rental that needs a new stove, then a window, then the lawn mowed, etc ... this can cause burn out.

[Aussiegirl]

In Oz, majority of fails I've seen are:
1.  Overleverage - something goes wrong and you "lose the lot" when you're forced to sell (I've seen this happen to friends)

2.  Short sighted ness - it's expensive here to get in and get out of property.  Plus our property cycles tend to be years of doing not much then a couple of years of boom.  If you are unlucky enough to buy at the start of the years of slow growth, get jack of seeing no growth and sell before the boom years you see it as a fail, where as I see it as just not taking a long term view;

3.  Not doing the research - leads to buying in the wrong location, the wrong properties, not understanding the cash flows.......

4.  Listening o property "gurus" - and not understanding that they're out to make themselves rich, not you!