Top 10 Biggest Mistakes as a Real Estate Investor

Top 10 Biggest Mistakes as a Real Estate Investor

As many of you know I started investing in real estate in 2003, since that faithful day I purchased my first duplex I have controlled millions more worth of investment property including  helping others acquire many times more than that. While controlling those investments I have made many mistakes, some of which were smaller than others. As I am reflecting back over those years, trying to making sure I have a full grasp on the lessons taught by the school of hard knocks, and which I would like to relay to other investors both experienced and new. I have come up with my top 10 biggest mistakes I have made and how you can avoid them. (I will also write up the top 10 smartest decisions I have made)

These are in no certain order:

 1. Always believing the seller or real estate agent on expense items. After my first investment property I learned this tough lesson as I realized in those expense numbers they did not include vital items which were dragging money out of pocket. The main ones were maintenance and legal expense. In addition I suggest always getting the utility bills and average those out throughout the year also get the previous years. For every expense they state make them prove it and then make sure you are including legal, maintenance, replacement reserves, vacancy and several others. Remember the seller is looking to place their property in the best light as for operating numbers and 95% of real estate agents just have no clue and just present what the seller tells them.

 2. Just like number 1, believing the seller on all stated income items can be disastrous. On my first duplex the owner stated that even though one of the units was vacant that they had a renter lined up and even presented a lease, however the lease was not signed…duh. Well my Realtor had no clue like most agents and I was so green that I overlooked it as well. So after we closed, we called the renter and she said she changed her mind which of course we fought the sellers on to compensate us for almost 6 months after the closing, but never saw one dime.  Also I suggest getting proof that all tenants are up to date as it is stated on the operating statement. If they are not get a rent credit in the form of money at closing.

 3.  Not using a Realtor that specializes in investment property. You do not need to use a Realtor to find great deals, however if you are new, I would suggest using a competent Realtor that not only specializes in investment property but is also a real estate investor. To many people use family or friends that are Realtors to find them investment property, and wonder why they are losing money each month after they purchase because the agent had little to no experience as an investor. We see this all the time. You would never go to and Dentist to get your back adjusted, you would go to a Chiropractor. Same way with investment properties, as I always tell people ….make sure you are using someone who is 1st a real estate investor and then 2nd a Realtor.

 4. Call your local police department or ask neighbors about the subject property. This  is something that I have made a priority after that first duplex, I was working on the garage when a neighbor came over very quickly looking frightened and said “ I cannot stay long they are watching us, the renters on the bottom floor are running a drug house and prostitution out of there, got to go” with that being said I called the local police department and spoke with a detective that was investigating the tenants at which time he informed that they had been to the duplex around 6-8 times over the last 12 months from 911 calls, I relayed the info that the neighbor told me and I gave him the OK to raid the tenants. Yes I gave the OK to raid my own investment property. They did get several illegal weapons and lots of drugs. I was then able to evict them. So basically I inherited the past owners problem rather than knowing up front and negotiating better terms or moving onto the next property.

 5. Not turning vacant units quick enough. This is a basic lesson, however this is a lesson that I have taught over and over again to other real estate investors, especially new ones that have full-time careers. It took me about 30-60 days to have the unit “make ready”. Why? Well I decided to do it all myself and do it on weekends only, well that resulted in having a vacant unit for 90-120 days. The cure to that is if you do not have enough time in your day to have the unit “make ready” in a maximum of two weeks then I suggest you hire the work out. Yes it will cost a little bit more however will save you time. Time really is money.

 6. Not marketing your vacant units right away.  I used to wait for the unit to be fully rent-able before marketing; I would lose 30+ days. So start marketing ASAP, get that unit cleaned out ASAP, and if there are any updates you are doing sell the vision to the tenant, act like it is there already and is the best thing next to Chuck Norris!

 7. Not running criminal background checks.  I let my first few tenants in without criminal background checks; this was a mistake as one of them was a drug addicted and violent drunk. I never really do credit checks because most people that rent have some kind of financial issue in their past. To me the most important things and no criminals and a current verifiable job.

 8. Not using a competent property management company. Just like finding a competent investment Realtor, finding a property management company has been a very tricky subject and task. Once I got to a stage where I realized my best skills and out finding new deals and not managing day to day task, I decided to us a property management company. Well since that day I have fired 6 management companies, all of them had driven my property into the ground. The truth about using a general property a management company is that they do not look at your property like you do; they just see a way to make money on management fees rather than the investment and how to maximize it. I could probably do a list of 50 stupid mistakes property management companies have made that have cost me thousands of dollars. The solution!? Either getting to the point of being able to have an in-house property manager focusing 100% of their attention on your properties or using a property management company that has a CPM or ARM designation. These are given out through the IREM association for property managers. In order to get a designation the person or company must take intensive classes and have a volume of experience.

 9. I  was going to include lessons learn dealing with contractors, however that list is way to extensive then just one number, I will write a whole article just on this subject in the near future. This instead will be about the condition of the units that you are leasing. This will also go on my best decision list also. But I contradict a lot of other real estate investors with the mindset of …..Of renters just tear the place apart just do contractor white on everything and do not update anything. I believe it as a big mistake because of not knowing who my tenant base is, what they want and how to give it them. There is some truths to the thought of if it is not broken do not fix it, but when you turn a unit remembers the end user, who are you attracting? Personally I made a decision to use update modern color schemes inside the home, doing 1-3 different colors followed by white time and update lighting fixture, outlets and door handles. Most of the time I could leave the flooring, bathrooms, counter-tops and cabinets as is or a quick once over. See having modern colors and fixture brings in a slightly different tenant depending on the area. It really plays on the mood of the unit. I like going into properties knowing my plan and building that slight increase in costs when purchasing. Your tenants will love it and you can demand a better renter at top market pricing. This is more or less a mistake of not knowing my market and playing to the bottom of the renter pool vs. the top of that markets renter pool.

 10. Not having reserves on the property. I am a huge proponent o having reserves on a property and leaving those reserves alone….do not touch them. Too many times have I heard of people running into financial issues, because after a closing they moving money into another investment and then need a large chunk of money for repairs but are bone dry on capital. I have done this as well; we close on a deal and then move those reserves onto the next one. This goes for rehabs as well. Please take your hands off! This could make or break your investment.

Well there they are, and after reading through them I think I could easily go onto another list of 10, but going into more high level mistakes from an operations standpoint as well as marketing and generating leads. However the intent of this list is to learn from some very powerful lessons right away that you may be facing now with your current properties or are thinking about investing and are weighing the pros & cons. To many times have new real estate investors get all excited after reading a book and want to jump into rehabs or buying multi-family properties but soon find out that it can be a time and money pit. I am not here to scare anyone real estate investing it is truly the best investment out there; I just want to make sure everyone is fully aware at each step on their path to financial freedom.

Again feel free to ask any questions!

Thanks,

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1,351 Comments

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