What Mistakes Do You See Most Often?

Question

Going to be doing something different for an upcoming episode of a Podcast that I host about Real Estate. I want to hear from you guys!

A lot of the show’s listeners are newer investors. Or, they’re experienced investors looking to learn new strategies and approaches.

I’d love to hear from anyone out there who has enough experience in a particular area of Real Estate to have watched others come and go from your space. What have you seen to be one of the most common mistakes of new investors in your area of expertise? What are some of those things that just seem to show up again and again in people looking to learn the skills necessary to be successful?

Daniel Haberkost · Answer

@Brandon Reed it's funny because I've only been in the real estate investing world for several years yet I've already seen quite a few new investors come and go. A lot of people I met when I was just getting started stopped coming to meetups and never bought anything.

People hear a podcast or read a book about somebody who made a fortune and quit their job and they suddenly want to get in. They start reading books, listening to BiggerPockets and attending local meetups with lots of enthusiasm. They ask everyone whether they should wholesale, BRRRR, house hack, etc with no clear direction or goal other than "financial independence". Then, after 3-4 months most of them disappear. They realize this takes time/effort/capital and become discouraged. I'd say that not having a clear goal in mind, coupled with giving up too early, are two of the biggest mistakes I see new investors make. If you don't know where you're trying to go it's hard to decide which strategy/asset class to pursue and once you have decided you have to be relentless in your pursuit and expect to get rejected over and over again. Having a background in sales is so helpful.

The other mistake I see, often in new investors, is severe over-leveraging with marginal disposal income/savings. Real estate requires a lot of capital, period. It doesn't have to be your capital necessarily but if your broke that needs to be addressed first. This is especially relevant now as so many landlords are struggling with the moratoriums on evictions and a reduction in rental income. You need access to liquid capital somewhere and many new investors don't realize it. This has been especially true over the last few years as the bull market made everyone's properties appreciate with very low vacancy and strong rents but "the tide has gone out" as they say so many people are likely to lost their properties.

Matthew Irish-Jones · Answer

@Brandon Reed #1 most common mistake is underestimating rehab costs.

Tanvir Sattar · Answer

@Brandon Reed not having cash reserves. Getting a tenant in a flip or a new build can be tough in off season months. I always try to have expenses covered for 5-6 months per property.

Damaso Bautista · Answer

@Brandon Reed

The mistake of not playing the long game.  The need for instants gains, instant success, instant gratification, instant money and wealth is a common mistake.  The mistake of thinking that there is a magic pill or secret potion to real estate investing.

I truly believe that anyone who studies the game, saves the capital and credit score to start and then gives the real estate business the same effort that any successful person gives to their chosen profession, that they can be a successful investor if they want.

Like anything in life if you keep walking towards your destination, eventually you will get there.

Work hard, give it time, keep grinding!

Anthony Wick · Answer

@Brandon Reed

Pre-purchase: Not running their numbers correctly, or "massaging" the numbers to make the deal look good. In other words, they take the realtors or sellers numbers as gospel, or the Pro-forma, instead of running the real numbers. People are so anxious to make that first real estate "deal", that they aren't actually buying good deals.

Post Purchase, as a landlord: Not screening potential tenants properly, or letting current tenants get away with too many lease violations for too long, just to avoid any conflict. So many posts on BP start with; "they are 2 months behind in rent..."

Tanvir Sattar · Answer

@Brandon Reed I'd say 2-3 months is a lot more common. I just err on the side of caution.

Marlen Weber · Answer

@Brandon Reed great question and after following the discussion, it is clear that not starting out with a strong capital (whether it is out of pocket or not) is a huge one.

Patrick McGrath · Answer

@Matthew Irish-Jones

And time! Lol

George W. · Answer

The biggest mistakes I see new investors & flippers making as a contractor, is they are too driven by numbers.

they'll shop around for pricing on every little thing and end up going with the cheapest of the cheap contractors. Then end up getting screwed over by a shady fly by night contractor or getting a million change orders that end up costing more.

Couldn't tell you how many jobs I bid over the years where someone "half the price" did the job and I ended up getting called in to fix the hack work they did after the fact. Another common call i get is from real estate agents & investors: "i have a customer who got caught not pulling a permit and needs a permit stamped." That statement is contactor repellent to any reputable companies. Why would I stamp my name & professional license for a job you used a unlicensed person for?

Also new investors are horrible at estimating rehab costs. reading a book on estimating rehabs with zero experience on real estate or rehabbing doesnt make you an instant expert on rehabbing costs in your locality.

Chances are if you developed a good working relationship with a contractor they'd be willing to look at the place before you even close. I do that for good existing customers but not ones with no track record.

Brandon Reed · Answer

Thanks so much for your input, @Daniel Haberkost. Definitely agree with the dangers of over-leveraging. It's a difficult thing to balance when so many new investors hear, "don't be paralyzed in inaction. Get going! Don't over think it!", and that sort of thing. Knowing how to move forward with confidence, but still with wisdom and financial diligence...that's tough to do. Again I really appreciate your perspective! I'll share it on the show!

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