It’s no secret that a lot of new startups fail — real estate businesses included.
And there are lots of different reasons that those new companies fail. But the 2nd most common reason according to research by CB Insights is because (surprise surprise) those startups run out of cash.
In it’s most simplistic form, good business is good money management. You invest money to make more money and so long as your margins are positive, your business survives.
But good money management isn’t always easy.
In fact, here are 5 common ways that real estate investors waste money.
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1. Not Performing Adequate Due Diligence.
Ryan Dossey, the founder of Call Porter, owns over $9 million worth of real estate investments and he’s been in the biz for quite some time now.
He’s not someone you’d expect could make a mistake on his due diligence process.
And he hasn’t for a long time… but, recently, he almost did. In fact, he almost lost $100,000 because of unclear zoning on a property that we was planning to purchase.
Fortunately, he caught it at the last minute and the $100k mistake fell on the wholesaler who was planning to pass the deal to Ryan. Here’s the full video about what happened.
Spend as much time as you need on your due diligence process. This is probably the most common way that real estate investors lose money — by rushing their due diligence.
But it’s better to be safe than sorry and take a few extra days to make sure your next investment is a profitable one.
2. Hiring The Wrong People For The Job.
Hiring the wrong person is wicked expensive.
If you’ve never done it, then count yourself lucky — here’s to hoping your time will never come.
It usually hurts your internal culture, damages processes and workflows, and always costs a lot of money. How do I know? Because I’ve hired the wrong person for the job before. And letting that person go was like a breathe of fresh air inside of Call Porter — it unleashed us to build momentum and cultivate a healthy culture again.
Don’t make the same mistake. If you hire the wrong person, bit the bullet and let them go or put them in a more fitting position. Also, making your hiring process more rigorous to avoid this happening in the future.
3. Overspending On Renovations.
For house flippers and other types of investors that fix up distressed properties, overspending on renovations is a common money-waster.
Especially in the beginning, it’s easy to renovate a home more than needed because you’re nervous about being able to sell it on the back end.
As you gain experience — buy, sell, and renovate properties — you’ll soon learn that you only need to bring homes up to market expectations and no further. Anything beyond that is just wasted money.
You should also consider doing the exact same renovations on each property you purchase. Use the same paint palette, the same windows, the same flooring, and the same roofing. The simpler your renovation process, the easier it’ll be for your business to build momentum and save money over the long run.
4. Trying To Be a One-Man Show.
As an entrepreneur, you’re more determined than the average person.
You’re willing to work for your dreams, you’re willing to hustle, you’re willing to put in 15-hour days if necessary. You’re willing to work on something until it’s absolutely perfect.
The fact is, you are your best employee.
And it can be extraordinarily difficult to delegate pieces of your business to people who, well… have no intrinsic motive to help you build the business of your dreams — they’re just in it for the paycheck.
Which means they won’t do as good a job as you would.
Maybe that line of thinking is true. Maybe it’s BS.
But the fact remains, you can’t build a thriving real estate investing business on your own — if you do, you’re going to waste tons of time spinning your wheels and hating your life (and remember, time is money).
Do yourself a favor and hire A-players, work with Call Porter so you can take a break from answering the phone, or get that tool or service which will help you grow your business. When you’re working less and enjoying life more, you’ll be glad didn’t try to build a one-man business.
5. Wishing The Market Would Change Rather Than Adapting To The Market.
No one knows what is going to happen to the real estate market.
We can all make guesses, we can surmise, and we can consider lots of different factors — but at the end of the day, we simply can’t predict the future. We can’t foresee big corporations pulling out of economically dependent markets, technological advancements which will totally change the game, or new competitors entering the scene which make inventory sparse for other investors.
The best thing you can do, then, is roll with the punches. Sure — predict what you can. But also be willing to adapt when something happens that you weren’t expecting.
Many investors called it quits when the market crashed in 2008, but other investors took the hit and saw it as an opportunity to stock up on heavily discounted properties. Those are the investors thriving today — the ones who adapted to the changing market.
Similarly, multi-family homes have become more in-demand then they once used to be. While some investors refuse to learn about a new kind of property investment, others have adapted to that trend and made big money.
The point is, don’t be too stubborn about where the market should or shouldn’t go.
It’s going to go where it wants and the best thing you can do is follow it.