Making the decision to invest in real estate is often one of the best financial decisions people make in their lifetime. However, not all investments are good investments. There are many things to consider when buying an investment property. Here are the beginner real estate investor mistakes to avoid.
The first mistake many prospective real estate investors make is not knowing what type of property to buy or strategy to follow. Many people are unsure of which market, or property type to buy. You can buy local, or out of state. You can invest in single-family or multi-family homes. Knowing what you are looking for is important to finding a good deal. Once you narrow down your search it will be much easier to know when you’ve found a good deal.
Another mistake novice real estate investors make is not having the right team in place. For a property to run smoothly you will need a team of people who can manage and repair it. If you have the time or are particularly handy, you might do some or all of this work yourself.
However, unless you are a licensed electrician, plumber, and carpenter, you will have to hire people to work on the property from time to time. Therefore, take some time to find a solid team to help you run your property. Searching on Google and reading reviews can be a good way to start. Also, if you know anyone who owns or invests in your target market, reach out to them and see if they can recommend you to someone.
A big mistake that many new investors make is not thinking long-term about their investment. The cost of buying and selling properties is expensive. So unless you are a professional house flipper, planning to hold onto the property for a while is usually a good idea. Buying and holding gives you the advantage to steer the property in the direction you choose. Do you want to make more cash flow each month? In that case you might want to consider upgrading the property so you can raise the rents. While this might cost you quite a bit in the short term, long term it will pay off as you are able to increase your rents. Furthermore, the longer you own a property, the higher your equity will be as your tenants pay down your loan. Adding to that is the fact that real estate typically increases in value over time due to appreciation. These are some of the factors why real estate investors should think with a long-term goal in mind.
The final important mistake that new investors make is skimping on the due diligence. There are a lot of different factors to consider when selecting an investment property. Knowing if the taxes are paid up, if the area is in a flood zone, or if there is ongoing construction nearby will be helpful in deciding on buying a property. Getting a home inspection is highly recommended to ensure that you are making a sound investment.
Be Bulletproof,
Agostino
While the General Partners are always on the hunt looking for deals, the Limited Partners need to also assess several fundamentals before investing in a syndication deal. That said, there are 5 considerations:
1) The Desired Market
There are many drivers that will make cities come into favor over time. Wise investors are looking at population growth, income growth, employment drivers and crime rates. There may be many sub-markets within the larger city. Knowing the market breakdown down to the city level, you can better select the project to invest in.
2) Look for Available Syndicators
When you select your markets, look for syndicators that are specialists in that market. Social media is a good place to start if you are not local. Otherwise, you can attend the REIA or look for meeting on Meetup or Eventbrite. Rather than running their pitch deck, a good syndicator will educate the group on the area and help others on their deals. Check out as many events as you reasonably can to get a feel for the experience level of the syndicators in that area.
3) Selecting the Right Syndicator
Once you visit with the syndicators and check out their meetings, find one that aligns with your business strategy. Maybe you are looking to build multifamily. If so, find a syndicator that does those sorts of projects.
The track record of the syndicator is important. Before committing your cash to the project, make sure the syndicator or the team at large has experience with the project you are looking to do. It is important that the syndicator has a history of success in the local market.
Besides all the technical aspects, liking the person running the deal is super important. You will be working with the syndicator and the team for a long time. If you don’t like them, don’t work with them.
4) Evaluate the Deal
When you attend the meetings, chances are you will be added to the syndicators email distribution list. When they get a deal, they will probably send you an investment summary of an upcoming project. The summary will typically contain project information, rent roll, business plan, proforma, expected returns, and the overall business plan describing the overall upside. For instance, it’s this is a value-add project, understand what the team plans on renovating and how soon they believe they can drive their increases. Use this information to run your own analysis to determine if the numbers they have is realistic. If you are not sure on how to do this, some syndicators will consult on deals and offer advice on deals. In any case, evaluating the deal yourself before committing your money is key for this step!
5) Commit to the Deal
Every deal and structure is different. It depends on the syndicator, the asset class, and risk level. Each will have varying equity breakdowns and investment minimums. Some will only give you equity depending on how much you invest. Most syndicators have minimums of $50,000 with a preferred return, adding equity for larger amounts. If you are starting out and have $200,000 to invest, perhaps you invest in 4 good deals in your preferred markets. This will allow you to invest in different markets and diversify your portfolio and minimize risk.
Be Bulletproof,
Agostino
Research the market
Before buying a duplex, it's important to research the real estate market in the area where you want to invest. Look at the current property values, rental rates, and vacancy rates in the area. This will help you determine if buying a duplex is a good investment for you.
Determine your budget
Knowing your budget is important when buying any property, including a duplex. Take a close look at your finances to determine how much you can afford to spend on a down payment, monthly mortgage payments, and any necessary repairs or upgrades to the property.
Get pre-approved for a mortgage
Getting pre-approved for a mortgage can help you determine how much you can afford to spend on a duplex. This will also help you move quickly when you find a property you want to buy, as you'll already have your financing in place.
Find a real estate agent
Working with a real estate agent who specializes in duplexes can be a great help when buying your first investment property. They can provide valuable insights into the local real estate market, help you find properties that meet your investment criteria, and negotiate with sellers on your behalf.
Let me know in the comments below how you got your first deal!
Be Bulletproof,
Agostino
The four factors that impact real estate prices, availability, and investment potential are:
Demographics
Interest Rates
Government Policies & Subsidies
The Economy
First: Demographics
Demographics are characteristics of a population: its age, race, gender and income levels; the kinds of jobs held by inhabitants — and so on. Demographic statistics help determine real estate prices as well as what types of housing people prefer when choosing where to live. This would define whether people live in the suburbs or city and price ranges, like a starter homes for first-time buyers or luxury condos for retirees with money to burn. Major shifts in a nation's demographics can affect real estate trends for many years.
Second: Interest Rates
If someone is planning to buy a house with a mortgage, it's important to research interest rates to calculate how much the monthly payments will be. When interest rates fall, it becomes easier to obtain a mortgage loan and therefore more people can buy homes. This increased demand creates greater competition among buyers and pushes up the price of housing. As interest rates fluctuate, so does a person's ability to afford buying real estate.
Third: Government Policies & Subsidies
Legislation and government subsidies can affect real estate prices. Tax credits, deductions and subsidies are just some of the ways that governments can temporarily increase demand for real estate. Many cities will offer tax abatements for instance to spur growth and revitalize an area. Being aware of current government incentives can help you respond to market changes and identify potentially false trends.
Fourth: The Economy
The value of real estate is also affected by the overall health of the economy. This can be gauged using economic indicators like GDP and employment data, among others. When these are poor, so too are investments in real estate.
I just discussed some of the primary factors that influence real estate prices, but there are many other complex issues involved in determining the valuation of an asset. Learning about the factors that influence real-estate prices, and then applying this knowledge to evaluate investment opportunities is essential for anyone hoping to make money in real estate.
Be Bulletproof,
Agostino
Syndicating deals offers investors the opportunity to take down larger deals using other people’s money while providing a great return for everyone in the deal. Of course, all that sounds good, it’s easy for an inexperienced syndicator to get caught up with problems that may outright kill the deal, incur heavy fines with the SEC or even jail time.
When it comes to the world of investing, there are always risks. As a syndicator, it is your job to reduce these risks and fulfill your promise to your investors and stakeholders. This means putting together your operational team, the asset, and the financing in a way that have returns that are not only credible but also attainable. We can’t get caught up with our cognitive biases and say everything will go 100% to plan. For example, let’s say you have a deal in a marginal area. If a major employer closes shop in the area, it may cause the economic vacancy to skyrocket. You then may have trouble covering the debt service. These are the things you need to consider. Very rarely do things go perfectly. You need to build a margin of safety in your deals and include that margin in your bottom line numbers - from the purchase price to the returns.
Aside from the margin of safety all investors need to have, here are the 5 mistakes I've seen syndicators make when putting a deal together:
1) Bad Partners
The General Partnership must have experience in all aspects of the asset class you are working on. If it's a rehab, one of the partners needs to be a specialist at construction. If it’s a new build, a partner must have experience running large projects. In my opinion, they should also have experience navigating the last downturn, and that should be included in your discussions with investors. If your team doesn’t have experienced partners, coaches or mentors, there is a greater risk of failure. Again, you want to reduce failure as much as possible.
Aside from rounding out the team with great management, accounting and legal resources. You need to make sure that the team at large are all on the same page. When the partners start having problems, so does the property and the investors. If you have a goal of getting to 10,000 units, but your partner only wants to do single family homes, chances are the partnership will fail. If your partner is willing to work 100 hours a week on a deal, but you can only commit 10 hours a week, the partnership will have problems. Outlining the overall objectives for the partnership is one of the major downfalls of new syndications. Partnerships are like marriage: easy and cheap to get in; difficult and expensive to get out. Set the expectations early on.
2) No Legal Diligence with the SEC
Syndicators don’t realize it, but when they are getting a syndication deal together, they are issuing a security. This means they need to comply with the securities laws governed by the Securities and Exchange Commision. When people think of a security, they only think about a stock, bond, mutual fund, company share or something along those lines. However, the SEC will also classify a security as a promissory note or profit sharing agreement. To avoid trouble with the SEC, the rule is: if your investors are passive and you are doing all the work, you are now dealing with a ‘security’ that has oversight of the SEC. This means that before you take any money from an investor, you must have the documents drafted and registered by a securities attorney and have them sign off before wiring any money to the business bank account.
Another mistake when it comes to the legal side is advertising the deal. If you are working with your attorney to register the security as a 506B, you are not permitted to start running advertisements to raise money. In fact, you must have a substantive relationship with the investor before they can get in the deal. This does not apply if you are doing a 506C or crowd funding the deal. In any case, you need to take care anytime you talk about past or present deals and returns to your investors. Your SEC attorney can outline what you can and cannot say on social media or your website.
3) Not Lining Up the Right Debt & Enough Equity
More often than not, syndicators underestimate how much equity they will need to close and also renovate post close. As you can imagine, this has some very negative effects. Cash will get tight so they start cutting corners on the repairs. Once that starts happening, the good tenants leave and they start taking on any class of tenant just to keep occupancy up. This translates into lower gross revenue and kicks off a downward spiral that is tough to stop without an injection of cash equity.
Speaking of cash equity, it always takes more time to raise the money from investors than you think - even if they say they will invest. Sometimes they commit verbally, but don't actually sign the document. Other times, they need to move the money from an IRA. This can add anywhere between 15 to 30 days before the funds are in your account. If they can't make the deadline, you could come up short. This is why you should always have a full pipeline of investors ready to get into your deals. This is done by continually talking to new people and getting verbal commitments ahead of time. That way, if someone leaves you hanging after giving you a $200,000 commitment, you have other people you can turn to for the money. Raise the money fast and raise it as early as possible. Always be out there talking to prospective investors and make your pitch. This is the best way to prepare for the worst case scenario and don't end up stressing at the closing table.
On the debt side, you need to find the right loan for the project. For most of you out there, you are jumping directly into a deal. Sometimes, you need temporary financing to get it done. For instance, if you get a bridge loan on a deal, make sure the balloon is long enough for you to make the necessary rehab to refi. If you think it will take 24 months to complete the rehab and they offer a 12 month balloon, don’t take it. Have your lender broker present options for financing the deal. Options should include a variety of leverage, rate and term options with a debt structure that is reasonable . You also need to make sure the lender can perform. Keep close tabs on them and get regular weekly meetings on progress. Never let them burn up your financing period.
As a side note, I recommend that you put a 2 week extension in your purchase & sale agreement just in case you need more time to wrap up the debt or equity. You may need to put up another $5,000 to $10,000 in earnest, but it can really help you out of a jam.
4) Underestimating the Property
Property underwriting is one of the first things you should be doing when considering a deal. This means checking the data sources that show things like income and job growth and how they sit with the national average before you get too excited. If you think there may be a deal, perform some stress tests to see how the returns look under different occupancy, rent and expense scenarios. Keep your scenarios simple and do not get overly optimistic. Your assumptions should be conservative across the board so there must be enough upside potential. You will also want to include them in your investor offering document so they can see you did your homework.
If the property is in a “path of progress” or in an area of gentrification, get proof of it before you go with what the broker says. You can't make a property better than the neighborhood it's in. If the area is rough, crime and vandalism will be an issue. The tenants won't be able to justify the higher rents for living at the property and you will have problems getting the return you promised. Again, if you are going after these areas and property classes, make sure you have a partner that is experienced.
5) No Communication with Your Investors
If you really want to impress your investors, set the expectation up-front and beat it. This does not mean making guarantees and putting your integrity at risk. This means finding good deals, analyzing them conservatively, operating effectively and generating returns that beat your projections. For instance, if you promise a 10% cash on cash return and deliver a 12.5% return, you will look like a hero. You just need to KNOW that you can beat that 10% you promise. Also, if you ever give a range of a return - say, 10% to 12% - the audience will always hear the larger number. So, be aware of this!
Once the investor is in the deal, keep in close contact with them. Update them every month for the first 6 months then quarterly afterwards by email, call or both. Take photos and videos and share with them so they can see what you are doing. Let them know you are doing everything you can to hit your targets and make the deal profitable. If you post weak numbers because of some surprise expenses, remain transparent and take responsibility for the problem. Always be ready with a solution.
As a side note, make sure you have a good CPA with you on the calls to assist with any questions. They should also be working on getting critical tax documents out for tax time before they are needed.
Any sophisticated investor will look at the property, the sponsors and the financing to determine if it meets their risk level. They will also look at the expected return, minimum investment amount and exit strategy. Make sure you stay on top of these 5 things and the acquisition should go smoothly.
Anyway, have you ever heard of anyone making these pitfalls? Maybe you experienced them yourself? Let me know! I look forward to chatting with you.
Be Bulletproof
Agostino
Research the market
Before buying a duplex, it's important to research the real estate market in the area where you want to invest. Look at the current property values, rental rates, and vacancy rates in the area. This will help you determine if buying a duplex is a good investment for you.
Determine your budget
Knowing your budget is important when buying any property, including a duplex. Take a close look at your finances to determine how much you can afford to spend on a down payment, closing costs, monthly mortgage payments, and any necessary repairs or upgrades to the property. I personally use excel spreadsheet to organize my budget.
Get pre-approved for a mortgage
Getting pre-approved for a mortgage can help you determine how much you can afford to spend on a duplex. This will also help you move quickly when you find a property you want to buy, as you'll already have your financing in place.
Find a real estate agent
Working with a real estate agent who specializes in duplexes can be a great help when buying your first investment property. They can provide valuable insights into the local real estate market, help you find properties that meet your investment criteria, and negotiate with sellers on your behalf. Local real estate meet ups are great ways to connect with investor friendly agents and get your name out there!
Let me know in the comments below how you got your first deal!
Be Bulletproof,
Agostino
President Biden has proposed to nearly double the capital gains tax rate in an attempt to fund the $1.8 trillion American Families Plan. This has caused some investors to fear a loss in their wealth, while others will be able to avoid it.
Within the new plan lies a tax increase for Americans earning more than $1 million a year in capital gains. The current capital gains tax for this bracket is 20%. This could possibly reverse the long standing laws where capital gains are taxed less than wages. The new plan would increase this percentage to 39.6%. However, it is believed that many wealthy individuals will be able to dodge it.
There will be ways (mostly legal) to avoid this increased tax burden. The wealthy can always find tactics to reduce their tax liability. One such example is the “step-up” basis. This is used when someone inherits a very large amount of assets. They can inherit it at current value and only pay gains on the appreciation made during their holding time. This means they could hold onto that asset for a short amount of time after inheriting it, then sell it with a $1 million dollar tax exemption. Charitable donations are also exempt from taxes. Therefore, people could donate assets and money to nonprofit organizations that they or their family are affiliated with in order to funnel the money back to them. As a result, some argue that these increases in capital gains taxes won’t raise much money as the wealthy are smart enough to avoid their tax liability.
If the plan is successful however, it will create revenue to fund new social programs such as free daycare and community college, as well as family leave and child care. This would put America on par with many European nations that already offer these programs to people. For example, in Sweden college is free, and new parents can both take up to a year of paid time off when a child is born. As one of the richest countries in the world, many argue that we owe it to our citizens to provide these services free of cost.
On the other hand, many wealthy individuals feel that they should not have to pay more taxes for others to receive free benefits. Furthermore, there is an argument that low capital gains rate stimulates entrepreneurship. It gives people an incentive to start their own business rather than be an employee. Real estate investors will have to pay extra attention to tax laws in the coming years. This makes it a very important time to find a good accountant if you don't already have one.
Be Bulletproof,
Agostino
Are you an aspiring real estate investor eager to get into your first multifamily deal? My advice is to not limit yourself with buying only that which you can afford but expand your mind to think bigger. This might be scary. The fear of making costly mistakes is a common concern, and I can relate—I was once in your shoes. In fact when I did my first million dollar deal I was terrified.
Before orchestrating a portfolio of $350 million worth of commercial real estate deals, I was nervous about doing big deals. However, now that I look back my perspective has transformed entirely.
Venturing into multifamily investing raises numerous questions: How do you source lucrative deals? Where can you secure the necessary funding? How can you build the confidence to analyze deals effectively? And, most importantly, how do you execute and maintain profitable operations in the long term?
You have a choice: spend years navigating the complexities of multifamily investing alone, potentially making costly mistakes, or learn from someone who has traversed that path before. I offer comprehensive guidance, coaching, and mentorship to accelerate your success in multifamily investing.
Don't allow fear to impede your progress towards a life-changing opportunity. Connect with me privately or visit my website to explore how I can professionally support you on your multifamily journey.
https://bulletproofcashflow.co...
I look forward to connecting with you!
Agostino Pintus
Multifamily Syndicator & Developer, Host of the Bulletproof Cashflow Show, Multifamily Coach/Mentor
Hello Bigger Pockets Community,
If you’re still buying single family homes and want to scale up to buying your first apartment deal but don’t know where to start, I understand because I was once there too.
Before doing $350M worth of commercial real estate deals, I was a single-family home investor too. Once I switched to multifamily, it changed my whole perspective.
There are so many questions like where to source the deals, find the money, how to build confidence in your ability to analyze a deal, executing properly and running a deal profitably long term.
You can do it like I did and spend decades investing in single family homes, trying to learn how to get into a deal that would literally change your life, or you learn from someone who has been there and done that. If you’re looking for help, coaching or mentorship send me a private message or visit my website for more information.
https://bulletproofcashflow.co...
I look forward to connecting with you!
Agostino Pintus
Multifamily Syndicator & Developer, Host of the Bulletproof Cashflow Show, Multifamily Coach/Mentor
Hey there, Bigger Pockets Community!
I want to share my journey with you—a tale of starting small and scaling big. It all began with a modest duplex in Virginia that I turned into a steppingstone towards something greater.
The path wasn't always easy, but through persistence, networking, and a hunger for knowledge, I discovered strategies and lessons that propelled me forward. Now, I'm eager to pay it forward and help others achieve their real estate dreams.
If you're curious about how I transformed that humble duplex into a $350 Million portfolio, I'd love to share my experiences and insights with you. Together, we'll explore the power of house hacking, generating passive income through multifamily properties, out of state investing and other tactics that have helped me grow. I'm here to provide guidance and answer your burning questions, regardless of your current level of experience.
I’ve learned that the best way to experience success in this business is to do. In real estate doing can be extremely expensive if you don’t know what you’re doing. From all the mentors I’ve learned from and coaches I’ve invested in what’s helped me the most is live action and accountability which is exactly the system I used when designing my mastermind.
If you’re interested in kickstarting your path towards financial freedom through multifamily investing send me a connection request and private message. Feel free to do some independent research about me on https://bulletproofcashflow.co...
I look forward to connecting with you!
Agostino Pintus
Real Estate Investor & Mentor