1. Not Having Proper Funding
There is no secret to the success of most Real Estate Investors. We use much of our own money, we never go to hard money lenders, and when we do borrow, we qualify for the best interest rates available. There are many advertisements that promote unrealistic expectations, “start making money investing in real estate with no money” is possible at an absorbent cost. Most often rendering the investment to be either not profitable or not worth the risk.
Borrowing from friends or family is also a risk. Most people do not have a high tolerance to risk. Thus, creating many calls from those borrowed from concerned about their investment consuming needed time. Wholesaling is often recommended. However, this process is extremely difficult for beginners. Without a network of buyers and sellers you may find yourself under contract with an awesome deal but without the buyer to close within the allotted contractual closing date. Hence providing undue stress on the seller and possibly damaging your extremely important reputation.
The alternative is to accurately do the hard work and financially prepare yourself for the opportunities of investing in real estate. Living below your means, stop buying liabilities (cars, vacations, clothes, jewelry) and start saving to buy assets that will buy your liabilities. Be frugal, work two jobs, work overtime, “SACRIFICE”.
2. No Written Goals or Plans on How to Achieve the Goals
A well written plan needs to be able to accommodate changes in your personal life (marriage, children, job loss, job relocation.), corrections within marketplace and turn of events that are beyond your control such as politics, wars, recessions.
3. Not Having Educated Yourself/Failure to Prepare is Preparing to Fail
Another most common mistake of Beginner Investors is not having educated themselves. Financial literacy is what separates the wealthiest from the population. Understanding the history of our economy allows educated anticipation of future market trends within your local area and nationwide. Understanding how the decisions of the Federal Reserve effect interest rates, understanding the decisions of local tax codes, benefits, and disadvantages of such codes, decides your success. Understanding the cause and effect of recent recessions also provide indications of where to invest. Research of local population increase or decrease. Other questions you should be asking are what steps are being taken by local municipalities to sustain growth. School rating, crime rate, road expansions, park development, tenant, and landlord laws.
4. Developing a Network
Lack of networking is another commonly seen mistake of most new investors. Most new investors continue to invest time with other new investors rather than attend the following.
A) Attend local Council/Community Board meetings
B) Summer fairs within the community
C) Join local volunteer organizations that top realtors and investors attend
D) Attend law enforcement meetings open to the community
E) Join local Chambers of Commerce
F) Visit local businesses every day. Become friendly with the local merchants
Use these opportunities to align yourself with the real players and simultaneously creating a good representation of yourself as the go to guy.
5. Not Properly Vetting Contractors
Not having a professional contractor that understands the challenges a real estate investor faces can be the determining factor of the profit margin. I strongly suggest that before deciding on a contractor that you take the following steps:
– Visit active job sites the contractor is currently on. Is the site clean, are his workers respectful, is the detail work of good quality, are the current owners happy with the contractor’s performance, has the contractor completed the job within the dates provided on the contract?
– Check the Better Business Bureau. Are there any open complaints?
– Is the contractor’s license and insurance for the scope of the work required?
– Google the Contractors company name and the owners of the company. Is their online presence positive or negative?
6. Not Having Required Three Estimates
When renovating there are multiply trades that must work together, electricians, plumbers, carpenters, cabinet installers, granite installer, roofer, window installer, landscaper, painter, tile installer, exterminator, architect, engineer … As the investor it is your job to orchestrate the trades to avoid any delays and ensure that none of the work needs to be redone.
All investors should get at least three estimates from each trade to avoid excessive cost.
7. Not Having a Minimum of 3 Exit Strategies
There is always the possibility of many changing factors in the marketplace. Failure to prepare for the worst is preparing to fail. Precisely why all investors should have a minimum of 3 exit strategies on how to develop a profit from every investment.
-Can the property be sold as is? Wholesaling? If yes, what is the predicted ROI?
-Can the property be renovated and then sold? If yes, what is the predicted ROI?
-Can the property be rented for long term hold? If yes, what would be the expected ROI?
8. Not having accounted for all possible cost
-Not having accounted for unexpected over runs on the renovation
-Not having accounted for all closing cost on both the selling and buying
-Not having accounted for the carrying cost for more than 90 days
-Not having accounted for unexpected up grades
9. Not Having Developed a Network of Buyers, Sellers, Contractors, Realtors and Wholesalers
This task is the most time consuming but the most rewarding. After having been a Real Estate Investor since 1989, I have had the pleasure of having met some of the most remarkable individuals in the real estate industry. So much so that half of the deals I sign contracts on never hit the MLS because of the relationships I have forged throughout of the years creating a reputation of getting the deal done no matter how many difficulties are encountered, always negotiating with respect and honesty, and thinking outside the box finding a resolution to any problem that may arise throughout the negotiations process.
In conclusion, avoiding these mistakes is not difficult if you put in the time to recognize the potential problem and do the work to avoid the problem.
Daniel Borrero, Jr.
Real Estate Investor since 1989.