10 Lethal Mistakes for Real Estate Investors

10 Lethal Mistakes for Real Estate Investors

I occasionally find an article that I feel should be posted here for your review. This one seems to fit those requirements. I often tell people in the program that our second greatest goal is to help you be successful. Our first greatest goal is to help you avoid getting burned. The source information on the article is included at the bottom.

10 lethal mistakes for real estate investors
By Pat Curry

Once the market starts to rebound, investing in real property also becomes a more appealing idea -- either as a career or a great side job. Like any other endeavor, though, there's a right way and a wrong way to go about it.

Bankrate spoke with established, full-time real estate investors and with professionals, such as bankers, to identify the types of traps into which real estate investors most often fall.
Here's their consensus on 10 of the most lethal missteps.
10 lethal investor mistakes

Planning as you go.
Thinking you'll "get rich quick."
Playing Lone Ranger.
Paying too much.
Skipping homework.
Ducking due diligence.
Misjudging cash flow.
Lowering the volume.
Painting yourself into a corner.
Miscalculating estimates.

1. Planning as you go. Andy Heller, an Atlanta-based investor and co-author of "Buy Even Lower: The Regular People's Guide to Real Estate Riches," says lack of a plan is the biggest mistake he sees new investors make. They buy a house because they think they got a good deal and then try to figure out what to do with it. That's working backward, Heller says. "First, you find the plan," he says. "Then you find the house to fit the plan. Pick your investment model, and then go find property to match that. Don't find the strategy after you find the home."

The problem is that most people look at real estate as a transaction instead of as an investment strategy, says Doug Crowe, a Chicago-based real estate investor and speaker. "People fall in love with a property," says Crowe, who is managing director of Springboard Academy, the nation's only real estate academy for investors. "I say, 'Who cares about the property?' I fall in love with a motivated seller."

The number is the number, and you don't go above that, he says. The best way to solve the problem is to have lots of activity and make offers on multiple properties. Then you don't care which one you get -- as long as the numbers work out in your favor.
2. Thinking you'll "get rich quick." That kind of wrong-headed thinking is fueled by "these self-appointed gurus who have infomercials and make it sound so easy to get rich in real estate," says Eric Tyson, co-author of "Real Estate Investing for Dummies." It's not easy. It's a good long-term investment, but so is putting your money in a mutual fund, which is a lot easier. "These gurus don't talk about all that hard work. You have to be smart, you have to be willing to work, and you have to understand your risk tolerance."

3. Playing Lone Ranger. A key to success is building the right team of professionals. At the very least, you need good relationships with at least one real estate agent, an appraiser, a home inspector, a closing attorney and a lender, both for your own deals and to assist with financing for prospective buyers. In the remodeling and maintenance segment of the business, the team includes a plumber, an electrician, a roofer, a painter, a heating and air conditioning, or HVAC, contractor, a flooring installer, a lawn maintenance service, a cleaning service and an all-around handyman. You can't build a business as an investor if you're spending all your time fixing leaky faucets and putting up ceiling fans.

4. Paying too much. Heller says the biggest reason investors don't make money is simple: They pay too much for the properties. "The profit is locked in immediately once the investor buys the property," he says. "Due to mistakes in the analysis, the investor pays too much and then is surprised later when he doesn't make any money.

5. Skipping homework. You wouldn't think you're qualified to perform open-heart surgery without years of education and training. Yet many wannabe real estate investors don't think twice about taking their financial lives in their hands without even cracking a book. Educate yourself before you put your family's financial security on the line. Read articles, check out books from the library and look for a local chapter of the National Real Estate Investors Association. Speakers at monthly meetings cover everything from buying foreclosures to screening tenants. If you can't find a local chapter, find out who owns a lot of rental properties in the area, call him up and offer to pay for an hour or two of his time to find out whether this is a good career for you.
6. Ducking due diligence. Investors often have to move very quickly on their deals. That doesn't mean they sign a contract and write a check without plenty of research, though. That's where a lot of newbies trip up, says Houston-based real estate agent Laolu Davies-Yemitan. They don't do their due diligence about the deal, the costs or the market conditions, and they wind up draining their personal savings because the house needs extensive repairs or they can't sell it. "Sometimes, new investors are buying property just based on the idea that the property is going to appreciate," he says. "Usually, they don't have any information to substantiate that."

7. Misjudging cash flow. If your strategy is to buy, hold and rent out properties, you need sufficient cash flow to cover maintenance. "People think they can get a property manager," Tyson says. But many have never interviewed a property manager and have little idea about how they work. Most managers, for example, are reluctant to take on one single-family home or a duplex, he says, preferring larger complexes, and fees of 7 percent to 10 percent of the monthly rent are common. "It's a huge expense," Tyson says. "I can put my money in a mutual fund and it costs a half-percent a year."

Davies-Yemitan agrees. It's not uncommon for a property to sit on the Houston market for 90 to 120 days before it's leased, he says. Meanwhile the owner has to pay the mortgage, the taxes, the insurance, the cost of advertising and homeowner or condo association dues, he says. If the owner hasn't budgeted for that, an asset can quickly become a liability.

8. Lowering the volume. If you're working on one deal at a time, Crowe says, you're doing transactions, not running a business. You need a steady pipeline of prospective deals; sufficient volume will weed out the marginal deals and let the good ones rise to the top.

9. Painting yourself into a corner. Many people buy a property and get stuck with it because they only have one exit strategy. They're going to sell it or they're going to rent it out. What if it doesn't sell? What if the rental market stalls? Always have two, if not three, ways to get out of any deal. For example, if plan A is to rehab the house, put it on the market and resell it, then plan B could be to offer a lease-purchase to a buyer. Plan C might be to hold the house and rent it out. And as a plan D, there is the wholesale option, which would involve selling to another investor at a below-market price. Hopefully, you'll still make a profit, but at the very least, you'll cut the losses you're taking every month in carrying costs.

10. Miscalculating estimates. Crowe tells his new rehabbers that after they've done their homework, they should double the amount of time and money they think it will take. If they can still make money then and they might be able to rent it out, it's a good deal.

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Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:


thx for the info Dallin



Go faster do more! GFDM!

Thanks Tony

Just a couple of additional points for all those reading. As I reviewed the information above, the reason I decided to post is because each one of these items represents real things that we deal with regularly on the training line. They are not made up, and they are not unusual.
And they are all avoidable either by doing adequate due diligence, or by asking experienced investors and listening and following directions.
In particular, the advice against being a lone ranger is valuable. We build teams so we have professional advisers around us, and people who can assist us to be successful while we create opportunity and income for them. Asking questions of them when needed, or enlisting the help of a professional trainer in the program are ways to avoid costly mistakes.
There is an old saying that the difference between a novice and a seasoned investor is the number of bruises and scars they have. In order to avoid getting beat up too badly, pay attention to these lethal mistakes and take action to avoid them.


Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:

Must be this way

Well, if it weren't for these colossal mistakes, how would the RE world revolve? Just like anything else, a loss for one person is an opportunity for another. Just be educated enough not to fall into the grinder.


P.S. - Everything else is immaterial, irrelevant, and unnecessary.

Another excellent post

I really want to thank you for taking the time to post. You always write in a clear and easily understood manner. The one area that speaks to me the most in this post is the first point about "planning as you go" I always want to know what my exit strategy is before I purchase and then find the property to match.

Have a great week.

warmest regards,

Great post

This post has some great tips and information, especially for the newbies just starting out.


Reynold Orozco

much appreciated

Hi Coach thanks a huge bunch!!!!!Great stuff to take very seriously on every deal, sincerely, Jim



my bad

oops i posted in the wrong forum topic

Thanks to YOU

It's always a great pleasure to post here for a couple of reasons:
1) It is satisfying to give back to an industry that has helped your own life;
2) The interaction with all the great people in this forum is priceless.

Each of us brings a lot to the table here, stemming from our varied backgrounds and knowledge, and also from the questions we ask of each other that allows for more information to be shared.

I hope each of you realizes your own brilliance and will continue to grow as a real estate investor. I know that this interaction encourages me to lengthen my stride and become better at my craft. Again, thanks!


Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:

Great Article.

Thanks for posting this great article Dallin. I think its awesome that all these pit falls are addressed and sufficiently avoided within Dean's strategies. It is just one more validation that he is the real deal. Do your research, run your numbers, develop your plan but remember to not get stuck in analysis paralysis. Action and mistakes are the best ways to learn as long as you properly manage your risk.

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