The Top 6 Mistakes People Make When Investing Money
Everyone makes mistakes...
Mistakes are an inevitable part of life. As investors, however, even the smallest of mistakes can have a huge impact on our bottom line. These errors can make the difference between building wealth and suffering a huge loss.
So how can we avoid making mistakes with our investments? There’s no easy answer. What we can do, however, is take a closer look at what mistakes lead to financial losses.
The following mistakes all boil down to one thing; not having money rules. Money rules help us do our due diligence and have long-term, strategic success with your investments. Let’s take a look at the top 6 mistakes people make with their investments, and what money rules you can create to prevent them.
1. Rushing a Deal - No deal should be made without proper planning. Big investments don’t close in 30 days. They require careful planning and negotiating. Often times, it takes 3-5 months (or longer) to finalize these deals. You should treat these investments with special care and commitment. What can you do to make sure you don’t rush a deal? Make a due diligence list. This list can cover all the big steps you need to take in regards to zoning, contract, warranties, insurance, and more. Taking your time ensures that you look professional to investors and avoid getting stuck in a bad situation.
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2. Not Having an Exit Strategy - It’s easy to focus on the positives when it comes to our investments. Who doesn’t imagine having a couple extra zeros in their bank account? While there’s no denying the importance of positivity, it’s also beneficial to focus on the big picture. What if my investment fails? Should I refinance or get out? Having an exit strategy is a crucial step. Bankers and investors are bound to ask you about your exit strategy. Make sure you prepare an exit strategy to please investors and to minimize your losses.
3. Going Straight for the Purchase Agreement - Have you ever rushed into an agreement? Then you know how painful it can be. One of the biggest mistakes investors make is going straight for the purchase agreement before crafting a letter of intent. A letter of intent is a great way to show your commitment without signing on the dotted line. It’s a non-binding contract that encourages discussion. It also buys you extra time to look at your financing options and do your due diligence.
4. Having the Wrong Team - Let’s face it: you’re not going to be an expert in every industry. The day to day operations or running a business might seem completely foreign to an investor like yourself. At some point, you’re going to need some help. Many people, however, choose to go at it alone. This can be extremely detrimental, especially when it’s your first business venture. Arm yourself with a team of experts that each bring something unique to your business. You can seek out experienced veterans like financial planners, stock brokers, insurance agents, attorneys, or anyone else that brings value to your team. Word to the wise: avoid friends and family. You need to surround yourself with people you can learn from who are knowledgeable about your investment.
5. Uninspired Deals - We’ve all been there. You’re in final discussions with a group of investors, only to have them pull out of your deal at the last second. What went wrong? It’s important to analyze your offer from their perspective. Were they taking on most of the risk? What would motivate them to take the deal? Many offers fail because they lack creativity. You have to give up something when you’re getting off the ground. You might have to relinquish some control or equity. Maybe you need to bring somebody on the team that can expedite deals to help close with urgency and speed. A lot of great deals fall by the wayside because they lack creativity.
6. Skipping Background Checks - Background checks might seem like a nuisance. They cost you both time and money in the short term. That cost, however, is nothing compared to the cost of getting involved with the wrong business partners. Always conduct thorough background checks on people involved with your investment. Don’t be afraid to walk away if someone’s background check has red flags - no matter how attractive the deal.
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