Everybody makes mistakes.
Even the savviest real estate investor can underestimate rehab expenses, fall too far in love with a single property (forgetting that they’re running a business, not a trade-show), or even rush through due diligence.
In other words, you’re not alone. If you’ve made mistakes before… so has everyone else (that’s part of learning, after all).
Now, you simply want to avoid future blunders by learning about them before they happen to you. And you’ve come to the right place — here are 7 too-common real estate investing blunders and how to avoid each.
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Blunder #1: Spending Too Much Money On Rehabs
I once talked to an investor friend of mine who specialized in flipping mobile homes and he told me that his first few deals, he made way less money than he should have because he was so paranoid about rehabbing them to pristine condition. And since the mobile home target market often can’t get bank loans, many of those rehab costs went down the drain.
The amount of rehabbing you should put into a property depends on what you’re planning to do with that property. If you want to rent it, then you don’t need to rehab it like you would for selling it on the MLS. If you want to wholesale it, you probably shouldn’t fix it up at all. And if you want to flip it for full market value, then a bit bigger budget might be appropriate.
Blunder #2: Rushing Through Due Diligence
This is probably one of the most common mistakes that new investors make. Since proper due diligence on a house can take a long time (depending on how much research is necessary), many rookies want to jump now and ask questions later.
Don’t.
Take time on your due diligence — as much time as is necessary. If you still have questions about the property, if you’re uncertain about how it’s zoned, or if you’re not 100% sure who the current owner is, make phone calls until you find out.
Here’s an example of an investor losing $100k because he didn’t double check the zoning.
Blunder #3: Accepting The First Tenants That Apply
If you’re buy-and-holding rental properties, then one thing is probably at the forefront of your mind: making sure that each of your properties has paying tenants.
Otherwise, you might not be able to cover the mortgage costs of those units.
BUT… while I know it can be tempting to take the first tenants that apply for your property simply because they’re the first applicants, don’t (unless they’re actually good tenants). Getting bad tenants who miss payments and/or damage your house is farrr more expensive than waiting a few months for great tenants who’ll make payments on time for years to come.
Blunder #4: Using Investors To Avoid Financial Risk
Want to kill the scalability of your business quickly?
(Of course not, but stick with me)
Then use investor money to finance your business and perceive that money as a way to avoid monetary risk… Don’t pay investors the money you promised if a deal falls through and make them, not you, absorb all of the involved financial risk of your business.
That’s a sure-fire way to kill your business over the long-run. Private money investors (the ones who make it possible to scale your business without using your own money) will lose trust for you and you’ll have to start depending on bank loans or your own capital. Here’s how Ryan explains it…
Blunder #5: Focusing On Too Many Things At Once
This blunder is related to entrepreneurship generally, not just to real estate investing: focus on doing just a few things well.
One way to make sure your business never builds the momentum it needs to reach high-ticket investing profits is to focus your business’ energy on lots of different things. Engage in every kind of marketing you can think of. Do every type of real estate investing. Have 10 different target markets. And operate in 20 different cities.
In the future, once you have momentum, you might be able to build a business which does those things. But to build momentum, just focus on a few things and do them better than anyone else — that’s a much faster way to build a successful investing business.
Blunder #6: Sticking To Your First Offer After Complications
The only point at which a negotiation on a house is over is once you’ve paid the seller and they’ve walked away with your cash in their pocket. Until that point, nothing is written in stone (even contracts can be modified if unforeseen circumstances come up) and you should treat it that way.
Don’t pay too much for a property just because you want to stick to the first under-informed offer that you made. When new information about the property presents itself (oh — the zoning is kind of wacky, or there’s a rodent infestation, or there are drug addicts across the street), you should adjust your offer to the seller based on that information. Otherwise, you might pay too much for a house and end up losing money on the deal.
Blunder #7: Doing Everything On Your Own
Being a solopreneur and being an entrepreneur are totally different things.
While building a business can be fun, working 15-hour days for the next 10 years because you didn’t hire the right people or create the right systems isn’t fun. It can feel like a drag right now to create systems and train people to take over, but it’ll benefit your business 10-fold down the road.
Don’t be afraid to invest time and money into building a business which serves you rather than enslaves you.
Oh! And Call Porter can help you do just that — find out how.
Conclusion
You’re trying to do something that you’ve never done before — build a thriving real estate investing business.
The truth is, you’re going to make mistakes. Everyone does.
Still, you can try to avoid as many of those blunders as possible by learning from the mistakes of others and keeping in mind the above 7 too-common flub-up that many investors have made in the past and will make in the future. Not you, though… because now you know what to avoid. 😉