Mistake #1. Paying too much.

The biggest mistake any real estate investor can make is paying too much for a property. One common way real estate investors think is that their profit is made when they buy, not when they sell. Getting a good price is the main way to make money investing in real estate.

A real estate investor who pays too much will suffer an inferior return, because the property will appreciate less from a higher purchase point. If the real estate investor paid way too much, he or she may even suffer an ultimate loss on the property.

Without getting a good deal on the front end, a real estate investor will have a hard time getting a reasonable return on his or her money after all the carrying costs real estate requires. Because owning real estate requires many ongoing costs (maintenance, property tax, etc) relative to other forms of investment (e.g. stocks), a real estate investor must be especially sensitive to purchase price, as even a significant appreciation from the purchase price to the sale price can lead to a sub-par return.

Mistake #2. Not understanding the market.

Another big mistake real estate investors make is not understanding their real estate market. Understanding a real estate market is more than just knowing a city or a neighborhood; it requires knowing and understanding the underlying demand for the kind of real estate the investor is investing in.

For example, if a real estate investor buys suburban single family homes, that real estate investor will not be successful unless he or she understands the market for suburban single family homes in that locality.

Who are your buyers going to be? Who are your renters going to be? A real estate investor needs to make sure that he or she understands who their buyers and renters are and what they are looking for in a home.

Real estate investors fail to understand this at their own peril; this mistake can be costly as the real estate investor is stuck with a property that is not appealing to anyone.

Mistake #3. Failing to do due diligence.

More often than not, when a real estate investor is stuck with a property that is a money loser, the fault is the investor's own. Real estate investors must go the extra mile when performing due diligence. A failure to do an adequate amount of homework on a property, a neighborhood, or a real estate market in general is an inexcusable error, yet it is one that many real estate investors make.

Real estate investors must check assumptions in their investment plan for a property against key market details. For example, if an investor's plan requires selling the property at a market price after holding the property for less than one year, but the median time on the market for that kind of property is 1.5 years, the real estate investor setting himself or herself up for a disappointment.

In addition, due diligence on the individual property itself is a must. A real estate investor must work with a great property inspector, and a real estate investor should understand and know how to look for common property damage problems. Not only are two sets of eyes better than one, but the real estate investor will see the property before the property inspector, and understanding property damage problems can help the real estate investor screen undesirable properties and save time and money.

Mistake #4. Not having an investing strategy.

Another big real estate investing mistake comes from taking a transaction-by-transaction view of real estate. Real estate investors need an overall investment plan, and need to stick to it. A transactional view will result in an investor buying a property because it's a good deal without fully understanding the property's real estate market.

For example, if an investor mostly buys campus-area apartments for rental to college students, he or she risks making a big mistake when buying a rural farmhouse for appreciation. It is natural for investors to develop a circle of competence; it is dangerous for an investor to move outside of their circle of competence.

Worse than ignoring circle of competence issues is having no plan at all. Merely getting a good deal on a property means nothing without an exit strategy. Without understanding show to make money on a given kind of property, a real estate investor is lost-no matter how little he or she may have paid for the property.