5 Mistakes Most New Investor’s Make

In the current atmosphere everyone is a real estate investor. A simple search on Instagram will land you with everyone from realtors to marketing gurus pretending they know how to invest in real estate. The truth is, the last ten years in real estate have been easy. Basically anything you bought increased in value and it was really hard to make a bad deal. Yet, here we are in 2020. Real estate investing is going to get a bit trickier and take it from me you want to have a true “expert” leading you in your journey. I wanted to share with you some common mistakes I see investors making when they first start out in real estate.

1. Ignoring the Numbers

The numbers are the MOST IMPORTANT part of any deal. So many times I hear of investors trusting their realtor or a friend who knows real estate. When you purchase any property it is a big investment and there is risk involved. That risk decreases significantly with the more education in real estate you have. Any deal you make you should personally crunch the numbers on to ensure it is cashflowing. I go over this step by step in my book “The ABC’s of Buying Rental Property.”

The truth is Many people miss the costs associated with real estate and are overly optimistic on their numbers. I’ve seen first-time investors run the numbers on a new deal and miss critical costs like Cap X or property taxes on their spreadsheets. You need to know all of the costs associated with a property and the actual rent you can collect from capturing other similar properties in your area.

2. Not Properly Screening Tenants

Having a tenant is having a business relationship with someone and is not just putting someone in a unit. I see first time landlord’s rush on this critical piece, but here are the standards you must check before moving someone in. I listed them below, but go in more detail on this here.

        1      HEALTHY CREDIT HISTORY

        2      CLEAN BACKGROUND CHECK

        3      CLEAN EVICTION HISTORY

        4      STABLE EMPLOYMENT HISTORY

        5      SUFFICIENT INCOME

        6      POSITIVE LANDLORD REFERENCE CHECKS

3. Repairs and Maintenance

No matter how nice the property is there will be maintenance issues that arise. Most new investors don’t calculate this. An experienced investor will know to put aside at least 2% of the value of the property every year to account for any of these potential costs. This can at times kill a deals profitability, but it has to be considered.  Finding a good, affordable, and reliable handyman is someone you need to have on call in these situations to mitigate the cost.

4. Getting Too Attached

Do not let your heart rule on any of the decisions when it comes to buying or selling a property. If you let your emotions get involved you could end up making the wrong choice. I never get attached to any property I am looking at. I buy based on the numbers, it’s as simple as that.

I have seen this too when people already own a property and go to rent it. They are worried about the tenant staining the countertops, or scratching the wood floor. Once again, don’t be emotional. Get a nice sized security deposit to cover these incidents, because they will happen, and move on. Your rental properties are your business and you can’t get attached to them.

5. Not Knowing the Market

The worst deals are made when someone who isn’t a local comes in knowing nothing about the market and starts purchasing. I always advise small investors to stay in their local markets. You know that market better than anyone. You know what areas are good to be in and where you would run. If you are going to invest in a market you are not extremely familiar with then go there and get to know the area. Also, chat with people in the community to better understand the pros and cons of that area.

If you’re looking to get into real estate investing you should know it’s not easy. It’s going to be a whole lot of work and there are going to be a whole lot of things you need to watch out for.

Make sure you know the numbers and that you’re willing to walk away from the deal if it doesn’t work out for you based on those numbers. Rushing in could cost you a lot of money, but knowing what you’re doing could make you a lot of money.

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The Nine Most Important Things to Consider, When buying a Rental Property….

1) Does it Cashflow

People often times miss this very important question. They try and measure the cashflow of the future value, or they say they don’t mind feeding it some money each month. To be direct, it is only a good investment if it cashflows based on the rents and expenses of today, not the future rents you think you will get five years from now. Cashflow is the most important thing when deciding on a rental property.

2) Property Taxes

Property Taxes are an expense that varies widely in an area. Once again this goes back to cashflow. If the property taxes are high, but it’s a good area and you can charge high rent then it may be worth it. You always have to look at your profit minus your expenses to really see the cashflow potential.

3) Schools 

Consider the quality of the local schools around you. Good tenants with kids normally want them in a quality school district.

4) Crime

No one wants to live in an unsafe place. Sure, most areas look safe during the day, but make sure to take a drive around on a Friday night. See if you feel safe in that environment. Also, talk to the neighbors and ask them about criminal activity in the area.

5) Job Market 

Locations with growing employment opportunities attract more tenants. To find out how a specific area rates for job availability, check with the U.S. Bureau of Labor Statistics (BLS). Too many times investors don’t take this into account. There is inexpensive real estate in some areas, that would cashflow if you had a tenant. The important word there is “if”. Jobs create tenants, so make sure there are jobs in that area and that the employment rate is growing and not declining.

6) Amenities

Tour the neighborhood and check out the parks, restaurants, gyms, movie theaters, public transportation links, and all the other perks that attract renters. The more amenities an area has the easier it will be to rent.

7) Is It Somewhere People want to Live?

Investors get very wrapped up in price and often forget about the demand in the area. You will have high vacancy if it’s not a desirable area for tenants to live. A desirable area typically has a lot of the amenities above.

8) Average Rents

Rental income will be your bread-and-butter, so you need to know the area’s average rent and what the comps to your property are charging for rent. Zillow is a good place to start to find this out.

9) Natural Disasters

This was a big lesson I had to learn, but you don’t want to invest where there are high rates of natural disasters. Hurricanes are an especially expensive disaster and take it from me, a hurricane will eventually hit your property if you’re in a hurricane area.

Investing in real estate is a great way to obtain financial freedom, that said you can’t just go into it blindly. You have to do it right. In my book, “The ABC’S of Buying Rental Property” I walk you through what you need to know, so you make the right investment choices and maximize your profits.

Click here to check it out!

Why now is the time to read the ABC’s of Buying Rental Property

Don’t skate to where to puck is,
skate to wear the puck is going.
-Wayne Gretzsky

This is a great quote and something that really resonates with me at this time. You have to move toward where you want to be, not where you currently are. So many people want to learn to buy their first rental when the market is great and they are looking to buy. The truth is, you should learn how to buy your first rental before you are ready to buy it. You should then retain the knowledge you obtain in this book to educate yourself on when is the right time to buy the rental and what rental is the right one to purchase.

If this Pandemic has taught you anything, it should be you need a side hustle. You cannot let yourself to be dependent on one income, no matter how reliable you think that income is. Rental Properties are a great side hustle. If you buy the right rental property, at the right price, it can give you a consistent monthly income to supplement the income you have already established.

So why don’t more people use real estate as a side hustle? It is because they don’t understand it. The truth is owning a rental property can be a great experience or an awful experience. The determining factor is if you are educated on buying and managing a rental property or if you are learning as you go. I love learning as you go in a lot of things, but rental property isn’t one of them.

If you are interested in obtaining a rental, then take the time to read my book “The ABC’s of buying Rental Property.”  The next couple of years you may have the biggest buying opportunity you will see in your lifetime, so you need to be prepared. I wrote this book to prepare you with all of the information you need to know when purchasing your first rental. I am going to help to prevent you from making the same mistakes new investors make and to maximize your investment.

Click here to purchase my book on the ABC’s of Buying Rental Property!