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9 Mistakes All New Real Estate Investors Make

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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 market.  Both of these data formulas can be found through a real estate broker using the MLS (Multiple Listing Service).

2.  Mistaken Value

investor mistakes

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 difference 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 them 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.

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About the Author...

William Bronchick, J.D. is a nationally-known attorney, author, and speaker. He has been practicing law and investing in real estate since 1990 and has been involved in over 2,000 real estate transactions.

Bill has served as President of the Colorado Association of Real Estate Investors since 1996. He is the author of many excellent real estate investing courses.

You can visit Bill Bronchick at his web site: LegalWiz.com

Comments

  1. Steve says:

    Ok. I HAVE to ask. But on #2, the first paragraph states “Most new real estate investors use Zillow, e-appraisal, or Trulia…”. But in the second paragraph it states ” Learn to find your own comps using public data websites like Trulia.com”

    So which is it? Should we use Trulia or not? This definitely makes me question the author’s credibility.

  2. William Bronchick says:

    Steve I think you are confusing the Automated valuation vs the raw comps.

  3. Brad Fallerman says:

    9 mistakes have been sited . However the one i Made on my first property was left out. We account for sale price , closing costs .insurance, inspections even accurate rehab costs w/ possable over runs but as embaressing as it is beginners forget the obvious .Your rehab may take 6 months your carrying costs add up ie. mortgage ‘elect, heat, property tax etc. These all have to be paid thru rehab & time on market.
    GOOD LUCK TO ALL

  4. Mike MacFarlane says:

    I was e-mentored by Bill Bronchick for some time and his advise was always spot on. The biggest thing I can say of these nine areas is that we need to know the market and it’s relation to value of the home. If the market is slow for example, then that would impact the value of the home because you would have to sit on it for awhile. If you have to sit on the place and pay the note then you may be better off with a lower asking price and see it move quick. Also, in my area two homes next to each other that in the past held a similar value now have big differences in value. My personal residence took an 18% hit in this economy yet one up the street only took an 8% hit in value.

  5. John Corey says:

    A good list from William and some quality follow on comments from the reader. Well done to all.

  6. Katherine Love says:

    Hi I am so glad to have information in this market. I have bought,rehabed , and sold over 18 houses .Two were in 2004. Still things have changed from even 2004.
    I would be honored to follow you and to read the messages. I am looking for houses to work with and haven’t found any that were worth trying to flip. I think the real estate agents now tell teh owners to rehab kitchen and baths . I found 2 out of 300 homes in Ft Worth area that I could rehab them . One is no longer on mkt and the other has big foundations. I look every day . Thanks KL

    • Katherine, Im still new to this industry, but I have read enough to offer this advice. The days of finding deals on the MLS are over. You need to get creative in how you find deals. You need to start targeting motivated and desperate sellers in the forms of fsbo’s, divorces, foreclosures…

      There is a lot of information on this site to help you find creative ways to target motivated sellers. Best of luck

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