5 mistakes I will never repeat as a real estate investor

Real Estate Investor Mistake No. 1

Right off the top of my head, a common mistake I have made and I know others have made, is that we overestimate the after repair value (ARV) of a home.
It is very easy to do. When you are attempting to buy the property and the numbers are a little tight, you can talk yourself into it. Hey, you say, “the comps say it’s $110,000 home, maybe I will be lucky and sell it for $120,000.” You tell yourself you will get this extra money because you will market it in the summer, or you will put some real nice granite in there, or you will wait an extra 15 days for that special buyer who will pay the premium.

When you are sitting in front of a spreadsheet trying to rationalize a purchase price for a property you can talk yourself into a lot of things if you are desperate and looking to purchase a home as an investment. Don’t. Stick with the data. Stick with the comps. The numbers don’t lie.
We are not speculators. We are investors and we make educated decisions based on data.

Real Estate Investor Mistake No. 2

Underestimate the repairs that will be needed. This one is closely linked to Mistake No. 1, as you are trying to rationalize numbers.
During the same evaluation period when you are considering purchasing the home, you can talk yourself into paying a little more for the house or closer to what the seller wants. Then you start to tell yourself that maybe you will paint the cabinets instead of replacing them.

Maybe you won’t put granite in the bathrooms. You start to peel away at your repair number. Maybe that foundation is not as bad as you thought. You speculate. You expose yourself. Those repairs you thought it needed at first sight is what is really needed and there is just no way around them or their expense. Listen to Kevin discuss this on blogtalk radio here.

Real Estate Investor Mistake No. 3

You go out and find the cheapest possible contractor.
Cheaper is not always better. You may celebrate a victory in finding a cheap contractor, but you may find the workmanship is not up to par. You will pay for that when it comes time to sell the house. Perhaps you cannot present a reputable warranty on that work as you could have if you had chosen a legitimate, well-known, stable contractor. Or perhaps you cannot prove the work was done by a licensed contractor.
When you go to sell the house, you may run into all of these things. And, all those savings quickly disappear.

Real Estate Investor Mistake No. 4

Underestimating the value of cash flow. This is something I would encourage all investors to review but especially the new ones.
The value of buying and holding or the value of renting properties can be easily underestimated. The temptation is that you are going to come across homes you can purchase and quickly make $10,000 or $20,000 cash now. Or, you can purchase that exact same house for those exact same terms and generate $200 to $300 to $400 per month in cash flow for your lifetime. The temptation is to take the $20,000 right now. But you have to put down that shiny object. Look at cash flow vs cash now.
The power of cash flow by holding rentals long term and generating monthly income is how the most successful investors achieve longevity and stability and truly build not only cash wealth but long-term equity and long-term wealth.

Real Estate Investor Mistake No. 5

Not understanding that marketing is key to your business and that the multiple listing service is a retail marketplace.

Investors come into the market and think they are going to find investment properties right off the multiple listing service and that is what will fund and fuel their business. What most do not understand is that the multiple listing service is retail shopping market for homes. Now granted, there are great deals there like you can go to any retail store and dig through the clearance rack and find great deals. But you are mistaken if you think the multiple listing services will fuel all the leads and all the homes you need to be successful.

You must market your business and gain access to distressed sellers with distressed properties. If you cut back on your marketing because you want to save some money, well, that is the most devastating mistake you can make. You must be consistent and diligent in your marketing and you must market in multiple ways – direct mail, internet, newspaper, bandit signs, driving the streets looking for homes in distress for sale. Your ability to market yourself and your business and gain those leads is the key to your business and don’t overlook it because those homes won’t come your way without your working to get them.
The one thing I left out is networking. Go to your local investment club and tell everyone what business you are in, including all your friends and family.
Listen to Kevin discuss this topic on blog talk radio. Click here.

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