Common Real Estate Investing Mistakes
07 Jun I By Jeffrey Holst
Oftentimes we talk to real estate investors or people thinking about starting to invest that think real estate investing is a sure thing but many people make the same few mistakes.
Experience has taught us that if you are able to avoid these common errors you’ll be well on your way to accumulating the real estate riches that you are dreaming about.
Be Careful and make sure you don’t fall into one of these traps
- Avoid poor research. Most of us do a lot of research when we make relativiely small purchases. How much time did you spend thinking about the last phone you bought? Would you have thought about that even more if it cost a couple hundred thousand dollars? Our guess is you’d have done even more research! So why is it that we often just spend a few hours researching a piece of property?
- Inadequate or inappropriate financing. Its so easy as a real estate investors like to try to get into a deal cheaply, or to negotiate hard for your preferred terms. Real Estate is complicated and the deals we make tend to have a lot of moving parts. This also true of the financing portion of the deal. You might negotiate a balloon payments, a longer or shorter amortization period, interest-only, owner financing, or something else entirely the point is its really important to spend the time to get the terms that make the deal work.
- Its easy to get carried away or to fall in love with a property but you need to remember that getting your price with out the right financing can still kill a deal. You might even be willing to pay more for better terms. Be sure that you can unload the property or get other financing before a balloon payment or a rate reset kills your deal dead.
- Trying to do too much. Real estate is a team sport. Consider hiring a property manger, a good contractor or a great book keeper, you are unlikely to succeed on your own. You probably need at the very least , a real estate agent, attorney, title company, inspector, handyman, and insurance agent that you can call at the drop of a hat, you just dont know when you will need their services.
- Get expert advice. Make connections, be networking all the time, you don’t know what you don’t know.
- Avoid overpaying. This should be fairly obvious but knowing the right price is a product of doing your due diligence (see number 1. above). Over paying is a sure fire way to kill a deal. If you pay too much you will likely be stuck with a property that is dragging you down.
- Beginning investors are much more likely to work the numbers a little bit in an attempt to make a deal work. Do not do this! Do your due diligence and trust the numbers. Don’t over pay!
- Failing to check the numbers. This is similar to overpaying. Often investors will look at a repair budget and think, ” I can get it done for $14,000, my contractor or so and so investor is crazy to think it will cost 20K” But what if it really takes 25k? If you first over pay and then you under estimate the budget you will be completely screwed. If you dont know for sure what something will cost you have to do more research, Get a quote, do what ever you have to, to make sure you know the numbers
- Also make sure to account for all expenses. Missed expenses like landscaping, insurance, utilities, property taxes, etc can destroy your cash flow. Be realistic with your budget!
In our opinion pretty much everyone has made some or all of these mistakes. The trick is to make them less often than everyone else.
At every point in the market cycle there are moneymaking opportunities, just don’t let these mistakes sink you!
For more information about the market cycle check out episode 13 where we explained how to figure out where you are in the market cycle
Or check out our most recent episode with Harry Dent Jr.