Most Common Mistakes New Real Estate Investors Make!

There Are A Bunch Of Mistakes That Are Made, And Here’s How To Avoid Them!”

By Van Sturgeon

Real Estate Investor

Howdy…

People always ask me what the most common mistakes that new real estate investors make.

I like answering this question because it is so easy...Much easier to answer than where I think interest rates will be in the next five years or when my beloved Chicago Cubs will win the World Series again….

My Cubbies will win the World Series again, right?

Cue in the cricket sound…

Anyways...the answer to the question of most common real estate mistakes is the lack of education. 

Congratulations!!! 

By the virtue of reading this article, you are well on your way to avoiding stupid and costly mistakes because you have acknowledged that you need help and are willing to sacrifice the time to educate yourself.

Pat yourself on the back, kid!

The best real estate investment that you can make and that will always deliver the best return on investment is your ongoing self-education.

Trust me!!! Would you rather spend money on buying fish or would you rather spend money on someone teaching you how to fish?

Knowledge is power. Don’t ever forget that...

Now...With that out of the way, let me share the most common mistakes that I have seen or experienced.

Number one: Attempting to do all the work yourself and foolishly believing that you will save money by doing so!

I have seen many entrepreneurs, business owners, and real estate investors make the same mistake. The temptation is so great and it is so difficult to avoid. In the early days of my investing career, I felt that I had to do everything so that I could make more money.

I quickly learned that when you are the jack of all trades, you master none! 

I've seen many new investors fail and give up on their dreams of financial independence, because they simply feel they have to do everything on their own.

Wealthy real estate investors understand that old adage, “Penny wise, Dollar Foolish”. This adage is grounded on the reality that no one individual can do everything and one has to place the value on time. TIme costs money, and the more that an activity takes up time, it takes away from other areas that you could be focused on. 

The only way to true financial independence is by creating a team of experts and systems that will allow you to free up your time so that you can work on your business…. and not in your business!

This does not mean that you sit back in your ivory throne…

In the beginning of a real estate investment career, you need to learn every aspect of the business so that you can use that experience to become a better investor. That means that you should go out there and carry out your own renovations. This does not mean that you should learn to be the electrician or plumber on your renovation project. 

What I would strongly suggest is that you become your own general contractor and subcontract all or most of the work yourself. By managing your own renovation, you will have saved a considerable amount of money, controlled the timeline and quality of the renovation and learned an invaluable lesson on the renovation process and what the costs are.

Handling your own renovation will instill the confidence and knowledge to be able to buy other houses that are in need of significant repair. This is a huge advantage in the real estate market, as most people and investors would like a house with little to no renovation, because they are scared to get involved with a house that needs a lot of work.

Number two: Not including all the expenses accurately.

Many new investors are so excited to get their first deal that they forget about some of the biggest expenses involved in running a real estate investing business.

One expense that they forget about is property management.

Many new investors do not calculate an expense for property management, because they are going to manage the property themselves.

In the beginning of your real estate career, I would encourage you to self manage. You need the experience and education to help you become a better real estate investor.

Nevertheless...you still must allocate an expense for your property management, as your own personal time is valuable.This expense should always be listed when you are calculating net income, and when you are figuring out what your rate of return is on your real estate investment. 

I have personally shredded the hopes and dreams of many young and aspiring real estate investors when I force them to expense their property management, when calculating their net income. They are shocked and immediately realize that their “great” real estate investment wasn’t so great after all. 

Another mistake that the novice real estate investor will make is that they do not calculate a vacancy rate. They claim to have the nicest building in the area and that no one wants to leave because they are the best landlord ever.

This is a big and silly mistake to make when you are preparing budgets and forecasting capital expenditures, because even if you are in a hot market with low vacancy, eventually there will be tenant turnover.

In fact, I have found that tenants will leave you when you need them the most… especially around those times when you have major expenditures to make like a new roof or furnace. Tenants have that uncanny ability to leave you when you need their money the most.

Murphy’s rule...

Don’t be a sucker...

Finally...Another expense that many new investors neglect to calculate is property maintenance. Snow removal, lawn maintenance, fire inspections, furnace maintenance and filter changes are just some of the many little expenses that add up to a nice chunk of change. 

As a professional real estate investor, you must have accurate income and expense statements that balance out and account for everything. When you are not accurately listing those expenses, you can not deduct them to lower your net income. This is income that you are taxed on. 

Now...We all would like to do our part and pay our fair share of taxes. Lord knows that as investors and wealth creators that we pay a lot of money to the tax man. Why should you pay anymore?

Please run your business like a professional...

and if you did and you included all of the expenses that you should have accurately, you might find that your “great” property is NOT making you the great money that you thought it was. 

After including all expenses accurately, I have seen investors at break-even or minimal cash flow on their investments.

A bitter lesson that an investor quickly realizes that they bought themselves a liability that cost money, rather than an asset that makes money.

Number three: Bad bookkeeping and cheap accounting services.

If you want to be a successful real estate investor and run a lucrative real estate investing business, you must have a system in place to track all income and expenses.

You should want to work with a professional accounting service that understands your goals and investment objectives. From the previous examples given, you can see that running a professional real estate investment requires attention to detail.

In addition, a good qualified accounting service that specializes in real estate investment will be able to structure and identify a number of tax saving strategies that will reduce your tax liability. This is not tax cheating. You are using all the vehicles and mechanisms that have been put into place to help support the real estate investor.

Number four: Not learning how to find off-market real estate deals below market value.

“Money is made on the buy!”

While it is great to have realtors on your team and access to real estate services like MLS and Loopnet, these are not the places to find great deals.

Yet...that’s where 95% of all real estate investors go and look for deals. 

It’s all about supply and demand, and since there are so many purchasers in such a small space, it naturally drives prices up. It’s called market pricing since a product is sold where most of the buyers have access to bid on the product.

How is our goal to find the best real estate deal best served by wasting time, looking at properties on MLS and Loopnet?

Trust me! If there was a great deal on those things, I would have bought it before you saw it, or the real estate agent would have cut a deal before it ever landed on the internet. 

Stop wasting time and learn to find your own deals!!!

If you want to create true wealth in real estate you need to be able to find off-market deals. The more leads that you can analyze, the better chance you will have to find that great deal. Off market deals can be found in a number of different ways, such as using a wholesaler, looking at online classified advertisements, and driving around in a specific area and contacting owners directly.

Number 5: Letting your ego get in the way and not asking for help!

Many online real estate gurus would like to make you believe that they are self-made millionaires, and that they have the secret formula in three, five or six easy steps. 

This is nothing more than a sexy marketing gimmick to grab your attention…

There has never been anyone that has created a successful real estate business on their own. If you had an honest conversation with anyone that has achieved great success in their lives, they will always point to a number of people or events that have helped transform them into the success that they have enjoyed. It could be a business failure, a spouse, a family member, a mentor, a coach...There is always someone or something that has happened to help that person succeed.

If you want to grow and scale a real estate portfolio, you must be willing to ask and receive help. Often, very successful people will start their journey without assistance, but quickly realize what they don’t know. They fill those gaps with education, associations, coaching and mentorship. Successful people find the people that they would like to emulate, and learn and copy all of the steps that those people took on their way to build their business.

Learn from these people, and copy their proven system. Find someone is successful and that you connect with and emulate them. Buy their education, ask them questions and copy their steps. Quickly, you will reach the successes that you have always wanted.

Why reinvent the wheel?

Be smart and don’t be stupid

Number 6: Not having multiple exit strategies.

I am all about positive mindset and goal setting. It has formed the foundation of all of my successes in life.

Before you buy your first real estate investment property, you should always know what your end goal is, and you should always have multiple exit strategies. This will increase your odds of success, and keep you safe if things change for the worst.

Selling a property is an easy solution, but a successful investor has other exit strategies that they can employ to maximize profit. One exit strategy might be to move into a rental property, or convert a property from a single family home to a duplex, by finishing a basement. There are many other strategies that can be implemented, based on certain circumstances. A savvy successful investor never feels like they are trapped, and always has a plan for success.

For more information on house renovations and real estate investing, visit www.vansturgeon.com to help you in your real estate investment journey.