Don’t start building your real estate empire without understanding the three biggest risks to real estate investing.

Real estate investing isn’t for everyone but for those ready for the challenge, it can provide solid returns and a great diversifier for investments in stocks and bonds.

It’s not a stress-free investment though and for every real estate empire built, I’d bet that at least two investors have seen their savings vanish.

I was almost one of those many that real estate chewed up and left for broke. Ok, so it was a little worse than that. A few short years of real estate investing and I felt chewed up, digested and…something other than spit out.

But I’ve since rebuilt my real estate portfolio, having learned from the mistakes of the past. I won’t say that my new strategy of real estate investing has led to a fast fortune but it does look like I’ll be able to create some real long-term wealth.

It’s why I wanted to share my experience after reading Jackie’s article on crowdfunding real estate. Besides direct investment in properties, part of my new real estate strategy has been to use the new crowdfunding resource to diversify my portfolio and take some of the headache out of rentals.

From Rags to Riches and Back to Rags: My Real Estate Story

I first started in real estate as a commercial agent while in college. I worked 20 hours a week putting together investment analysis on the broker’s properties and contacting investors to arrange a meeting. I loved the idea of taking an undeveloped piece of land or unused property into a cash machine.

It was 2002 though and all the money was in residential real estate. Home prices were booming and everyone was getting rich by flipping or renting houses.

I bought into the passive income myth without so much an afterthought.

I bought two fixer-uppers with money I had saved while in the Marine Corps and during college. The idea was that I could fix them up, cash-out refinance on the increased value and use that money to buy more properties. Rents would pay off the mortgages and I would be rich in no time.

It didn’t take long before I owned six rental properties along with my own home. That was in 2006 and that’s when things started falling apart.

I was working a full-time job as well as managing my rental properties and it was just too much. Real estate isn’t the passive income miracle the 3am infomercials would have you believe. Between finding tenants, fixing every little thing, collecting rents, evicting tenants and starting the whole process over again – just a few properties can turn into a full-time hustle.

It didn’t take long to burn out. I still kept the properties in good shape but it meant not being as diligent at collecting rents. When a tenant fell behind, I no longer started the eviction process as soon as I should. When a tenant did end up moving out, I wasn’t in the house the next weekend to fix it up and get it back on the market.

That meant higher vacancy and lost rent. Eventually, I was dipping into savings to cover the mortgages and that couldn’t last forever. I ended up selling most of the properties just to get out from the debt.

Avoiding the Biggest Mistakes in Real Estate Investing

I still believe in real estate as a long-term creator of wealth. Owning property has long been a measure of success and even a determinant in the rights you enjoyed in society. Earning a solid return on your properties means avoiding the most common mistakes.

• Real estate isn’t necessarily passive income. Unless you can afford to hire out a property manager, something that may not even be available in your area, you can count on a constant stream of maintenance and marketing to run your real estate investments.

• Learn what you can do and how to get help. Making as much money as possible means doing as much as you can including maintenance, bookkeeping and legal. You can’t do everything though and every investor needs a good team of contacts. Consider joining a group of real estate investors that can help each other out with advice and services.

• Analyze every detail before you commit. Staying out of financial trouble is easier if you’ve detailed out every possible cost before you buy a property. This means estimating expenses as conservatively as possible, assuming they’ll be higher, to you aren’t surprised when cash flow is negative some months.

Avoiding these three mistakes won’t guarantee you success in real estate or make investing hassle-free but it will help avoid a slow, costly failure.

Start building your real estate portfolio slowly to get a feel for how much time it’s going to take from your schedule. Make your mistakes on just one property before you try buying any more. Besides helping to learn how much time it takes, starting slow will also help you get better at estimating expenses on properties.

The graphic will help you estimate a budget for your properties with some rules-of-thumb for how much each line can cost. Using this as a rough estimate will show you if market rents are enough to cover common expenses and the potential for your cash flow to turn negative in any particular month.

Is Real Estate Crowdfunding a Solution for the Hassles of Property Investing?

Even the best planned real estate investments are going to take work. A hands-off model with professional property management still means you’ll have to source good deals and negotiate the purchase.

Do everything right and still run the risk of local market problems unless you’ve got enough money to buy several different property types and in different markets across the country.

I still own rental property directly but have used real estate crowdfunding to balance out the risks and hassles of direct ownership. Crowdfunding gives me professional management and someone else sourcing deals, all I have to do is a little analysis to find the ones in which I want to invest.

Crowdfunding returns are generally around 8% to 9% for debt investments and average 12% for equity investments, according to a survey I did of crowd platforms and my own investments. That’s slightly below the return I’ve seen on direct ownership of property when you include the tax benefit but crowdfunding brings with it several other benefits.

• Professional management with experienced developers that have been vetted by the platform
• Easy diversification from $1,000 for an investment in each property meaning you can get exposure to multiple property types and in multiple markets for less than ten thousand
• The crowd platform manages all payments from project owners and automatically deposits your share of the profits into your bank account

Few assets have created as much family wealth as real estate but there are plenty of mistakes that trap new investors. Learning from these mistakes and taking advantage of new types of real estate investing can help you minimize your risk and max returns in property ownership. Take your time in developing your real estate empire and enjoy all the benefits of this long-term income generator.

Joseph Hogue worked as an equity analyst and an economist before realizing being rich is no substitute for being happy. He now runs five websites in the personal finance and crowdfunding niche, makes more money than he ever did at a 9-to-5 job and loves building his work from home business.