5 Worst Mistakes Novice And Experienced Real Estate Investors Make

Real Estate Investment (REI) is one of the best wealth building strategies. However, many novice and experienced investors alike make costly mistakes. Thus, anybody in the industry will testify that real estate investment is not a hobby or a child’s game. REI is a MEN’s game and it takes time, money and most of all due diligence and the right calculations/evaluations of the subject’s property acquisition.

“To fail to prepare is to prepare to fail.” Investors and those thinking about investing need to have broad knowledge of many issues, which require one to wear many hats. One has to do the Realtor's job and more...


5 WORST MISTAKES NOVICE & EXPERIENCED REAL ESATE INVESTORS MAKE



Real Estate Investment (REI) is one of the best wealth building strategies. However, many novice and experienced investors alike make costly mistakes. Thus, anybody in the industry will testify that real estate investment is not a hobby or a child’s game. REI is a MEN’s game and it takes time, money and most of all due diligence and the right calculations/evaluations of the subject’s property acquisition.

“To fail to prepare is to prepare to fail.” Investors and those thinking about investing need to have broad knowledge of many issues, which require one to wear many hats. One has to do the Realtor's job and more.



The five worst mistakes are:



1. Paying Too Much For The Property:



Before making an offer, one must know the Max Allowable Offer (MAO) MAO requires the proper calculations to determine what to offer. It is not as simple as some investors might think-- Asking Price/Fair Market Value - Repairs- Desired Return On Investment (ROI) = One’s Offer (OO = (AP-R-DROI)). One must consider all foreseeable expenses and include a contingency allowance for the unforeseeable issues-- specially when dealing with rehabs.



2. Over Rehabbing:



Novice investors make the mistake of over-rehabbing the property thinking that they will sell it for a higher price…WRONG! One should only do the necessary rehab to bring the property up to standards. In some cases, the property might merit some upgrades that will increase your return. However, one must farm the area and be familiar with the local market and possible demands from end buyers. This is especially true when holding the property for rental.



3. Investment Tolerance & Cash Flow:



Greed is a paralyzing sickness. Investors sometimes refuse to share the wealth and hold a property for too long, forgetting about their investment tolerance and Cash Flow. One must analyze a deal and determine several financing scenarios including the use of other investors to participate in the acquisition. Another common investors' mistake is to try to be “jack of all trades and master of none.” Investors should spend their time evaluating possible property acquisitions and not doing the work themselves.



4. Research & Due Diligence:



Investors must farm the area, review comparable sales, properly estimate rehab expenses, whether repair or replace, evaluate different financing scenarios with different interest rates (use credit cards, Hard Money Lending (HML), conventional lending, private investors, share equity, be creative-- use other peoples’ money (OPM)



5. Exit Strategy:



Real Estate Investment is about having options. When doing a property acquisition evaluation one must keep in mind all possible economic scenarios that might affect the investment. One cannot rely on flipping the property. One must think about how to maximize the return on investment by entertaining different exit strategies such as, whole selling, renting, hold or sandwich lease, owner finance, etc.



Real Estate Investors should consider the use of a property acquisition evaluation software before making a decision. The goal of a REI is to determine if a deal is profitable in minutes requiring minor input from the investor. It is to be able get a snapshot of potential Cash Flow when, Seller financing, or considering Hold or Sandwich Lease Options. Moreover, it is to Develop different investment scenarios and exit strategies and in less than 5 minutes get NOI (Net Operating Income), DCR (Debt Coverage Ratio), DS (Debt Service), ROI (Return On Investment) goal before taxes. Thus, by doing the right property evaluation, one can cover most out-of- pocket expenses before, during, and after acquisition--considering a contingency allowance to minimize possible unforeseeable expenses on holding cost and repair estimates.