5 Investing Mistakes You Need to Avoid
There are two types of mistakes in the real estate business: minor errors you can learn from and those that can cripple your business. While it is always helpful learning on the job you never want to make a mistake that sets you and your business back. All it takes is one bad mistake to wipe away months of hard work. There may be nothing you can do if the market turns or if there is an unexpected issue with the property but there are several things you can control. By focusing on not making mistakes in judgment or with your work ethic you will have no regrets if something happens. Here are five common investing mistakes and how you can avoid them.
- Lack Of Due Diligence. You need to treat every new property like it is going to be a home run. This means putting the same time and energy on every prospective deal. There are going to be times in your business when you experience a brief lull. You may make ten offers in a row without one of them getting accepted. The natural tendency is to feel like the next one is not going to be accepted either. This often leads you to do less instead of more. Without putting the proper time and energy in evaluating the property you will end up getting stuck with a lemon. Something that should have been caught in your due diligence is missed and before you know it you have several thousand dollars in unexpected repairs. If this happens you have nobody to blame but yourself. You should have a due diligence system in place for every new property you look at. By not taking short cuts you will never be caught off guard by something you should have picked up.
- Accepting The Wrong Deal. It is human nature to look for the highest price when you are selling your property. As an investor the best offer may not always be the one with the highest price. The first goal for any seller is to make sure the deal actually closes. Accepting the highest offer doesn’t do you any good if the deal doesn’t close. When evaluating offers you need to look at the whole story. Are there potential financing issues that can cause the deal to fall through? There is never a guarantee when it comes to lender financing but there are a few clues that can help guide you. If the amount of down payment or initial deposit is minimal this can be a sign of a buyer that may have trouble. If the buyer is asking for excessive concessions or contingencies it often makes for a difficult transaction. By accepting a deal that doesn’t close it forces you to start the process over again from scratch. The problem with that is the buyers that you had a few months ago may not be around. This adds several weeks, even months to the sales process. Don’t make the mistake of choosing the wrong deal.
- Not Vetting A Team Member. The most successful investors are surrounded by a good team. You rely on your team to help secure deals, closed them, make improvements to the property and handle your finances. When one of your team members drops the ball it impacts every other area of your business. It is easy to work with the first contractor, real estate agent or property manager that comes your way. It is only until after you get started that you may realize there is a problem. Instead of working with someone you are not comfortable with spend the time to fully vet everyone. Don’t be afraid to ask for references, previous experience and anything else that makes you comfortable. A great team can make your business a thousand times easier. On the flip side dealing with poor work quality, errors at the closing table or problems with a tenant will impact your business and your reputation.
- Not Understanding Numbers. You never want to ask yourself why you got involved with a property after the fact. As obvious as it sounds the numbers dictate the strength of any deal. Your goal is not to just accumulate properties but ones that actually make financial sense. You need to know everything about the project cash flow, return on investment, cost of repairs, after repair value and many more. If you aren’t sure you can ask your real estate agent, attorney, mortgage broker or a fellow investor for help. Never let a deadline force you into a property you don’t know everything about. If the numbers don’t work, or you don’t understand them, pass and wait for the next deal to come.
- Lack Of Communication. You should never assume that someone on your team is on the same page as you. Before getting involved on any deal you need to spend time to go over everything. This can be slightly tedious at times but consider the alternatives. If you and your contractor aren’t in lockstep about the budget or the work to be done your problems will be much bigger. If your tenants aren’t aware of move out policies there may be delays turning your rental property over. If you and your real estate agent aren’t clear on the types of deals or properties you desire you will have a hard time securing deals. You team should have a clear understand of your goals and expectations for every property you get involved in at all times.
In real estate you should control what you can control. There is nothing you can do with unexpected issues but there is no excuse in not doing the things you should.