It seems like every time you go out with your friends, one of them mentions how they should really be investing in real estate. The profit margins are bigger, the hours are easier, etc. etc. But for all of that talk about how much money they could be making, the chances of someone you know actually taking the plunge and diving into real estate are pretty much slim to none. Why is that?

via Flickr

Probably because real estate investing also carries its fair share of risks. For every fortune that’s been made on the market, two have been lost – and with odds like those, it’s easy to see why less adventurous investors stay away from it. However, even though there’s no way to guarantee that every real estate gamble will end up a winner, you can increase your odds by learning to avoid some of the most common mistakes rookie investors make. Here are 5 ways to make sure that your first investment doesn’t blow up in your face.

1) Start out with a turnkey investing agency. Turnkey investing is like the Little League of the real estate market, which makes it a great idea for beginners. In exchange for a portion of your profits, a turnkey investment agency will maintain the property, find tenants and handle all the other chores. The only thing you need to do is sit back and let the cash flow in. You won’t make as much money as you would by doing all the work yourself, but it’s a good way to learn the ropes without the risk.

2) Rent out everything. In the current market, finding a buyer for a property is an exercise in frustration. Tenants, on the other hand, are a dime a dozen. Renting has become very popular among young professionals, which makes playing landlord a good idea for investors of all experience levels. Renting out your property will give you a steady source of income that you can use to pay the mortgage and build your savings until the market recovers enough to sell the house. It’s so profitable, in fact, that many investors decide to keep renting their properties even when they’ve had offers to buy.

3) Know your market. The real estate market is a lot like the stock market. You make your money by buying low and selling high. In order to do that, you need to know where to look for properties that appreciate in value. This means knowing your local market like the back of your hand, or at least working with someone who does. If you can spot the properties with the most potential (like empty tracts of land surrounding a growing housing development), you’ll set yourself up for success.

4) Be skeptical. If an investment opportunity seems too good to be true, it probably is. Remember, the real estate business is full of sharks who are looking to exploit gullible investors, so you need to take every step with caution. Ask a seller to produce all of the paperwork before you consider making an offer, and make sure that a lawyer reviews every contract from top to bottom before you sign it.

5) Always have an exit strategy. You should never get yourself into an investment unless you have a plan to get out of it. Are you going to rehab the property and give it to your kids? Are you going to rent it out? The last thing you want is to be stuck paying a mortgage on a property that isn’t earning you any money, so make sure that you set a strict budget for your overhead, and give yourself a deadline – as well as a plan – to sell, rent or bequeath the property. That way, if you need to dump it in a pinch, you can.

There’s no such thing as a guaranteed real estate investment, but if you make sure to follow these tips, you can avoid many of the mistakes greenhorn investors tend to make. Remember that investing is a skill that requires time and practice. Don’t get discouraged if the first three properties you rent or flip don’t make you wealthy. As long as you keep honing your investor’s eye, you’ll land that seven-figure deal eventually.

Ben Yonge moved to the Sunshine State in 2003 after selling his residential services company based in Seattle, Washington. Ben created Equity First Realty with a goal to simplify the investment experience for fellow real estate investors.

Digiprove sealCopyright secured by Digiprove © 2012 Mitch Mitchell