9 + Mistakes All New Real Estate Investors Make

1. Not Knowing the Market Numbers

Knowing your market is as important as any other factor in real estate investing. This means having a neighborhood-by-neighborhood analysis of the supply curve and average days on the market. Both of these data formulas can be found through a real estate broker using the MLS (Multiple Listing Service).

2. Mistaken Value

If you don’t have experience rehabbing homes, don’t try to estimate repairs yourself.

Most new real estate investors use Zillow, e-appraisal, or Trulia (or worse, an average of the three) for determining the value of a property. This is fatal–learn to do a “comparable sales” analysis.

Get your own data, too. Relying on the listing broker to give you comps for properties is like asking the barber, “How’s the haircut.” Learn to find your own comps using public data websites like Trulia.com.

3. Underestimating Repairs

If you have no experience in rehabbing homes, then you shouldn’t be estimating repairs yourself.

Get at least 3 different contractors to give you bids. Get these bids in writing with detailed breakdowns of labor and materials.

4. Poor Choice of Contractor

A bad contractor won’t have a license, will bill you by the hour, and/or won’t work by a written contract drawn by you. A good contractor agreement is essential, have a local attorney draw one up for you. Make sure you get signed lien releases every time you write a check.

5. Bad Contract

Most real estate courses have crappy contracts because they are not written by attorneys. My advice is to learn your local Realtor form and draw up a few addenda. An attorney can help you with this.

6. Wrong Legal Entity

Most real estate investors form an LLC for their investing practices. Is this right? Maybe, maybe not. There any many tax issues involved in choosing an entity that should be review with a tax professional, NOT just an attorney (unless the attorney in question has tax knowledge, like me!).

7. No Marketing Plan

Most real estate investors hire a real estate agent to find the deals and that’s it. There aren’t enough good deals on the MLS to make a living on, so you need a better plan to market to FSBOs, foreclosures, estates, divorces, and other sources of motivated sellers.

8. No Script

OK, so got a motivated seller on the phone, and now what? Uh, uh, uh – what questions do you ask? Have a written script you keep by the phone, so you always know what to say.

9. No Business Plan

If you fail to plan, you plan to fail. You’ve heard that before, but how many investors actually write a business plan? The truth is very few. Take some time to write a good, detailed business plan that you can follow as your goal.

10. Holding costs

Each month you own vacant property, it costs you. But how much is it? PITI monthly payments, utilities, routine maintenance, and the “what if”.