subject: Top 5 Deadliest Mistakes in Real Estate Investing [print this page] Top 5 Deadliest Mistakes in Real Estate Investing
Not Getting Everything in Writing!
I acquired a property with a partner. I did a handshake deal with my "partner" to complete the repairs, and split the net proceeds from rent. The day after closing we had keys. We went over to the house, unloaded the tools, and did a little work, mostly demo work and planning. That was the last step he took into the house until the house was completed and ready to rent. He came to look at the house and pick up his tools. He stood there and was commenting on how nice it looked and how much we could get for rent. I said if anything I should get 100% due to the fact that I did almost 100% of the work in acquisition and renovation and fronted all the money. As you can guess, he mentioned our handshake. I said the other side of that deal was you would do half the work and pay half the rehab cost. He wasn't happy with that, loaded up his tools and left. I thought the written agreement was unnecessary due to the fact that we were friends before we were business partners.
Starting Out Using Your Own Money or Credit.
I started out using my own money and credit. What I found very quickly is that you, no matter how successful or how good your credit score, have a credit limit. It shut down my business. I overcame it using private money partners. These are people that simply loan you money for a partial ownership in your venture.* If you are going to go into business and/or real estate, I would suggest you become a master at the art of raising capital. I would start the day you decide that this is the road in life you want to take. Your education in this field is paramount, but without it success will be hard to come by.
*This is a whole subject unto itself. There are many experts who specialize in private money. I would look up them up and study their materials if going to do this.
Not Getting Help
There are only so many hours in the day and there is only so hard you can work. You will burn yourself out and make yourself sick. Take it from someone who has first hand knowledge of what it is like to be rolling on latex at 3:00am. You should not only get help with your physical labor, but your administrative work as well. If you are going to work hard, work hard on making great systems so your business can run with out you. Craigslist is a great way to find inexpensive, labor. Do your research on these people. There is a ton of public data on the Internet, to tell you a lot about the people you hire for free. There are paid services that are much more comprehensive. There are people in other countries that can do the administrative work for you for less than minimum wage here in the states. Networks are the present and the future. So you should be networking.
This help will enable you to be consistent.
Not Finding a Mentor and Emulating Him or Her.
If someone is willing to "take you under his or her wing", make sure they are not using you for free work. Also, be aware that the mentor is actually in a place that you yourself want to be. If you meet your mentor and he is standing on a ladder painting a ceiling and you do not want to be a "hands on" real estate investor. He or she may not be your guy. If you meet him in his office and you can see he is the go to guy, but not executing every aspect of the business, you may have found your mentor. That is, if that is how you envision your life and business. Ask me how I know this? Mentors teach you what they know.
Becoming More Motivated than Your Seller.
I have made the mistake of falling in love with a property or a business and what it does. I forgot that the numbers have to work. I rationalized how it would work because the house was so pretty or the business sounded "fun". If this one isn't great on paper, move on. There will be more opportunities, especially in this economy. If your seller isn't motivated in someway you aren't buying the right investment. Here are some situations that motivate the sale of real estate or business: Medical issues, Death in the family, Divorce, Relocation out of area and is not a reasonable drive to maintain it, Unoccupied property, Job loss, and bought another house and making 2 payments. If the do say something along these lines, I tell them, I usually work with people who have a little bit more of a pressing issue tied to the property. If you get a call from a seller and they are saying things like: It doesn't matter if I sell it, It can just sit empty, I was kinda wonderin what you've give me for it, etc. This obviously is not a motivated seller.
