I'm thinking of starting an AdWords campaign, but before I begin can anyone tell me what the biggest problems are with AdWords or what I should watch out for?
Adwords is difficult to get right (and I haven't mastered it myself yet, but working on it)...
My most important tip for beginners is:
Set a low, daily budget limit in the beginning !
This way, IF you make any mistakes, you won't lose hundreds (or thousands) of dollars in a single day !
Is it profitable for most or is it a money pit? Where else do the problems lie?
Unfortunately, that is impossible to answer
It CAN be profitable, but as everything else in this world...it depends !
Be prepared to spend a LOT of time learning about it, especially research keywords (including negative keywords) and do a lot of "trial-and-error" to learn how it can work for you....
Just make sure you earn more than you spend;)
Without setting daily budget, monthly budget, CPC and good keyword research do not go for any PPC campaign.
It can make you "the next richest guy in town" or "the next bankruptcy in town". Always proceed with caution. I suggest running an ad campaign in Facebook 1st since they are way cheaper than Adwords.
make sure not to use Google Display Network before you master it. That will take your CTR down a lot and will hurt your Campaign and will cost you extra for you CPC bids. As the CTR is the most important factor on Quality Score.
Learn well about Negative Keyword and use them effectively.
Another thing please read about Value of a Click for your keywords and make sure your CPC bids are below Value of Click.
Best of Luck