Skip to content
3 Real Estate Investing Mistakes to Avoid
Ryan G. WrightApr 18, 2024 3:13:02 PM12 min read

Three Real Estate Investing Mistakes to Avoid

Today we are going to be covering the three most common real estate investing mistakes to avoid. This will give you a huge advantage in your real estate investing efforts.

Watch the video below:

If you want to learn more about real estate investing, click the button below for a quick webinar where I explain more about how all this works:

Learn More - Attend Our Next Webinar

Today, we're gonna be talking about the three most common mistakes I see real estate investors making time and time again. I've seen this over the last twenty two years of real estate investing myself, both as being an investor and helping other people invest and in lending money. There are three. I see them frequently.

And if you can avoid these three, you will be so far ahead of the game. As a real estate investor, this will put you a leg up on everyone else. Without further ado, let's get into this. The number one thing that I see is overvaluing properties.

What does that mean? It means that the property is worth something and you think it's worth significantly more than what that property is actually really worth. We have to be very objective. And when we're being objective, we're looking at other things and comparing it saying, is my house as good as this house once this is done?

And I find that a lot of people find something and they overvalue it, trying to make a deal work, and it does not. Or if it does, it turns into a massive problem for them.

Let me show you what I mean by this. So this property let's say this is the property we have in mind. The first thing we wanna do is, does it make sense for us to go after this property? And there's two ways to look at that.

What is the estimated value? Estimated value is two hundred and twelve thousand dollars. Now that doesn't mean it's two hundred and twelve thousand dollars. That's a good idea to say, should I spend some time marketing this property?

Should I go look at this property? Should I make a phone call? Should I send us postcard? That's what is basically happening, why we use that.

Now what we know is there's an involuntary lien on this property for six hundred and thirty seven dollars, and there's two hundred and twelve dollars in equity. So what we wanna know is what do we think this property is actually going to sell for? Okay? So this is where we come in comparables nearby.

We can look at public data. We can look at MLS data, and we can look at, different criterias. Now I like to look up to about a mile.

I like to look within ten, twenty percent. I wanna make sure that I'm only looking at residential and, property types. I wanna make sure I'm looking at single family houses, and we're going back a year. What I can do here is it looks like it's got some rentals in here.

I can start with the lowest, and I can work my way up. So here is the least expensive property that we can find on public records.

Okay. Let's open this in another tab.

So the first thing that I'm gonna be asking myself is, okay. This property sold for a hundred and five thousand dollars. Okay?

The owner is Hard Cash LLC, so I know that it's an investor. So one of the first things I'm gonna be looking at is, am I buying my home, my purchase price for a hundred and five thousand or less? And if not, why not? Okay?

Because someone just barely bought this property for a hundred and five thousand, so I should be getting that same deal. It was a hundred and five thousand dollars. It was on December first twenty twenty three. So that's gonna be the lowest.

Right? That property has not had work done to it.

Let's look at this one. Here's another one. Okay. Let's take a quick look.

Let's allow this property sold for a hundred and fifty one thousand just a couple of months ago, and it sold to an LLC. So, a hundred and fifty one, that might be a a a good enough price.

Let's come and look at this next one. Okay.

Let's look at this one, and this one sold for a hundred and fifty six thousand within the last year.

Now we're gonna get into some of these that we might actually have some pictures on.

I don't know if I want that. Okay. So this one's sold for a hundred and sixty two thousand. So I'm coming in here, and I'm gonna look at the pictures.

This house isn't like horrible but it's not fixed up.

So it gives me an idea.

So we've got a whole system and we've got the information to help you make these decisions, but I'm looking at this in two ways. What are the cheapest houses that have sold on public records or on the MLS, and am I buying in that range? And second, what are these properties actually selling for? And when I look at the pictures as available, is my property, once it's fixed up, going to be in that same condition?

What I find people doing quite frequently is finding the most expensive house that's sold in the area and saying, that's what my house has sold for or will sell for, when the reality is that's typically not the case. You can see just within within this one block radius, we've got values from three hundred and seventy four thousand all the way down to a hundred and five thousand. That's a massive difference especially with the square footage, and of the property being so similar. This is between nine thirty eight and fourteen hundred.

So that's pretty similar. We could tighten that up if we wanted to. But again, that leads me to the first biggest mistake, which is overvaluing properties.

You've gotta make sure you're doing your comps correctly. You've gotta make sure you're pulling the information. You're seeing what they've been selling for, what other investors have been buying for. If you're buying on that and find the property that's gonna be as close to yours as possible starting with the lowest and working your way up. So that's the first mistake we see is overvaluing properties.

The second most common mistake I see is underestimating rehab costs.

That's one of the biggest things we see is people going in saying, oh, we can fix this house up for five thousand dollars when the reality is the carpet alone may be five thousand dollars. So when it comes to repairs, you've gotta make sure that you realize when you're done with this and you're reselling the property, the person buying that property is gonna get a full on inspection, more than likely, on this property, and they're gonna look at everything. This inspector spend five or six hours. He's gonna get on the roof.

He's gonna crawl underneath. He's gonna do all of these things to the property and come up with a list of anything he may see that's wrong with the property. And then give that list to you and the buyers are gonna say, we need you to fix a bunch of these things. So cutting corners actually hurts you in the long run because that buyer may walk away.

You may have to fix those things, then find another buyer. You've got interest expense, that's adding up, which you want to avoid. So cutting corners when it comes to the rehab really doesn't help you, and you wanna make sure that you're getting the most amount of money possible. And you can do that by making sure you estimate your repairs correctly.

Well, let me show you another software to actually do this. It's one of our tools. It's a rehab cost calculator. We'll just do it on this property.

This is just a random property that we're doing it on. Add to the group.

I was optional. Whatever. We'll just use this.

Okay. So when I'm coming here and I wanna estimate a new project, oh, living area. I can't remember what it was. We'll put fifteen hundred square feet. Okay?

We'll put this as a three bed and two bath. That information comes over, but it looks like we didn't have it on that specific property.

So we've got all the information. So you come here and you say this is new project. You can give it a name, which I usually name it as the property address.

Okay. Got it. Got it. Complete remodel by area. This is one of my favorites. So I can come in here and say, okay.

We are going to redo these outlets. We're gonna do a bathroom remodel. We're gonna do some lighting. We're gonna paint the exterior, paint the interior.

We're not gonna replace windows on this one, but we are gonna replace a water heater and but we think the roof is good. So those are the things I'm planning on doing this property. I continue, and this is going to give me an idea of costs that we're actually going to be into this property and what it's actually going to cost with a breakdown.

Estimated total is thirty five thousand. A do it yourself total is thirteen thousand.

So this actually information comes from areas and prices that are current as of the last thirty days. Now you'll see there's a big difference between do it yourself and what it's gonna cost to have a general contractor do that. You're gonna wanna make sure you've got a general contractor doing this because the person that's buying the property is gonna wanna make sure it's done by a general contractor and make sure that it's in good, working condition. Now is this a little high?

Maybe. Can you get less than that? Maybe. But there is going to be some money in there for the general contractor, contractor, and that's what you want.

So if you look at these, this goes line by line of everything that's going to be done. Maybe you don't need that detail. You can come back here and you can edit it and say, you know what?

We actually don't need that. We don't need three. We only need one. Or here, you know, we're gonna remove the bolt molding.

There's twenty six linear feet. There's actually fifteen linear feet. So you can come in here and play with it and get this, tighter of to where it actually needs to be. But what this helps you do is helps you make sure this property, based on those things that I need to do, I need to be planning somewhere around that thirty five thousand dollar budget.

This is what helps me. Now that's not the final answer. We're gonna work with contractors, put scope of work together, get prices from them, make sure that it matches in industry pricing, and then you'll know what your rehab is actually going to cost. The third mistake I see making happen all the time by real estate investors is choosing the wrong contractor.

Cheap is just cheap. So we're looking for value. We're not necessarily looking for price. If you're always looking for the cheapest contractor, you are going to have problems in the long run.

What we're looking for is the best value contractor. Biggest value is gonna come down to quality of workmanship, speed of workmanship, how fast can they actually get it done. Because if you have the cheapest guy, but he takes eight months to do a project that should have taken one month, you're spending seven months worth of interest that you shouldn't have had to do, and that's gonna cost you a whole lot more than potentially going with someone that may be a little bit more expensive. The reason they're more expensive is because they're gonna get it done faster and put more people on that, which could ultimately save more money, put more money in your pocket.

The other thing is that quality of workmanship. If the quality of workmanship is poor, it's gonna have a massive impact on the value that you're gonna be able to sell that property for. Remember, as we're looking at what that property is gonna sell for, we're comparing it against properties that have already sold or properties that are currently listed. And we wanna make sure our property is in as good or maybe a tiny bit better condition than those other properties that are currently for sale, and that's what's going to help us get this property sold.

So we wanna make sure that we're choosing the right contractor. Well, one of the things with contractors is I hate TV contractors.

Billboard contractors, TV contractors, I used to call them yellow page contractors if you're old enough to know what the yellow pages were. But these are guys that are spending lots of money on advertising. And what you've gotta realize is twenty, maybe thirty percent of the cost that you're paying to them is just to go to advertising to get you as a potential customer. So what I like to do, I have a few tips on how to find great contractors that are going to be reasonably priced and then how to screen those contractors to actually get the work done on time, on budget.

What forms to use, what tools to use, and what you need to do to set that up. There's some of the things that we recommend. We have that all together for our members, and we can help them out. Alright, guys.

So if you can avoid these three mistakes, overvaluing properties, underestimating repairs, and choosing the wrong contractor, you will be miles ahead of anybody else that's just getting started or is scaling their real estate investing.

If you want to learn more about real estate investing with me, click the button below for a quick webinar where I explain more about how all this works:

Learn More - Attend Our Next Webinar