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What are the most common mistakes beginning real estate investors make?

This was inspired by a LinkedIn question asked by Phoenix, Arizona, real estate agent John Sellers of John Hall & Associates; I think it’s a great question.

In no particular order, the biggest mistakes are:

1) Rushing. If you’re going to be an investor, you’re going to be an investor for a long time, so take time to do your research, consider several properties, get thorough inspections, etc.

2) Not having enough capital. It’s easy to assume that the previous owner’s numbers will work for you — and then the roof leaks. Leave yourself a margin for error.

3) Doing the “wrong” renovations. Remember the episode of The Apprentice where one team tore out a bedroom? With a rental, it’s not about your taste; it’s about the taste of potential tenants.

4) Not allowing for vacancies. Even if you buy with tenants in place, they’ll leave at some point (or they won’t, and you’ll have to evict them). When banks were conservative, they assumed that rental units were occupied only 75% of the time. I think that’s still a good rule-of-thumb.

5) Just plain overpaying. There’s a motto in real estate that “you make money when you buy, not when you sell.” That doesn’t mean that you can buy a house for a dime, but you do want to negotiate as hard as you can when you’re purchasing a place.

Posted in For Buyers 11 years, 9 months ago at 9:58 am.

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