In chatting with Head Coach of SREC, Kyle Garifo, we reflected on some of the mistakes and challenges that real estate investors face. We started discussing the good, the bad and the REALLY ugly things that we’ve faced and were able to compile this list of 10 big mistakes real estate investors make, which will hopefully help you be able to AVOID doing them! It’s funny to talk about because between the two of us, we probably not only each made this mistakes once, but maybe twice… or more! Real estate investing can be a complicated business, so it’s important to pay close attention to your process and try not to make the same mistake twice, especially if it costs you money.
Mistake #1: Bad Planning
When you make an offer on a house and it gets accepted and you put down your earnest money, you’re probably going to have about 2-4 weeks in between until you actually close on the property. Everything from budgets, schedules and Scopes of Work should be in place.
Mistake #2: Under Budgeting Property Repairs
It’s SO important to make sure that your contractor is on the same page as you are right from the start. You need to make sure that the product you are putting on the market is consistent with the neighborhood.
Mistake #3: Add-On’s
After you have put together your schedule, your Scope of Work and your budge, and you’ve started demo is NOT the time to decide you want to move walls around. If you decide you are going to move walls, that needs to be decided BEFORE you have finished your plumbing, mechanical, HVAC, etc.
Mistake #4: Missing the ARV
Figuring out what the correct After Repair Value (ARV) of your property is KEY. You need to figure out what sets your property apart from the other houses in the neighborhood – whether it’s got neighbors in the backyard or it’s wooded, the size of the lot, the finishes and fixtures, etc.
Mistake #5: Financing Costs
Sometimes I see when students put together their budget, they don’t factor in interest costs, paying points or paying for appraisals. They look at it like, “I’m going to buy $100,000, put $20,000 and sell it for $180,000, so that’s $60,000 in profit.”
Well, NOT REALLY.
You have to factor in your closing costs and financing costs, it eats into that $60,000.
Mistake #6: Holding Costs
This is another big mistake that newer investors make that can eat into your profits. This includes insurance, utilities, property taxes, etc.
Mistake #7: Contractors Missing Days on the Job
This is a very important thing to keep in mind – most of the time, your contractor is NOT working JUST for you, so you will constantly be fighting a battle to get them to dedicate the time to your project. Setting expectations with your contractor is very important so you don’t get behind on your schedule.
Mistake #8: Markup on Materials
It’s incredibly important to find a contractor who will estimate the cost of materials and have a clear understanding of your budget and how much you want to spend to avoid markups. Just starting out as a new investor, it might take a few
Mistake #9: Not Selling Your Property Quick Enough
You put a good property on the market, so it should sell itself and it SHOULD sell quickly. But sometimes, properties just don’t sell as fast as you expect them to. Days on market can kill a property. Make sure that when you go to sell, you are hiring an experienced, elite realtor who has been around for a while and has a great marketing plan of action.
Mistake #10: Your Buyer Flakes Out
What happens when you did an incredible job on your rehab, you list your property and it sells quickly, but then, your buyer flakes out?
People think when they get their property under contract, they are good to go and start dreaming about their profit money. DON’T make this mistake!
Real Estate Investing Mistakes Happen
Trust me, I know better than anyone that mistakes will happen regardless, especially if you are a newer investor just starting out. The biggest thing is to TRY and not to make the mistakes that cost you money. Every extra day that your rehab goes longer than planned, that’s costing you money.
Real estate investing is not as easy as they make it look on HGTV – that’s why having the proper coach or a mentor helps you avoid mistakes like these.