Real estate investing can be very risky and you can lose tens of thousands of dollars if you don't
know what you're doing. So in this video, I'm going to go over 10 different mistakes I've made,
which have cost me easily tens of thousands of dollars on every single one. And I'm going
to give you real-life examples, real-life stories that you can apply to your own real
estate investing business, whether you're new or experienced. So let's jump into it.
Number one is knowing and understanding on a very high level the landlord and tenant laws. So every
single city, county, is going to have different landlord and tenant laws. And you need to become
an expert, even if you're rehabbing, buy and hold, whatever you're doing, you should become an expert
in the landlord laws in your area. And there's plenty of freely available articles online,
sometimes of like horror stories, sometimes of good things that have happened.
But I'll just tell you a few stories. Like in Washington, D.C., I do some investing in
Washington, D.C., you can be a tenant, and hopefully my tenants aren't watching this,
and you can literally go years without paying your rent. And if you know what you're doing,
you can kind of evade the eviction process. They're called professional tenants. When
I was getting started in the real estate investing business, I was a property manager
for some pretty large buildings. And we had some tenants that they hadn't paid rent for
a year or two. And the way they were able to evade the court systems was that they
would basically just file some type of complaint saying this needs to be fixed. Then the landlord
would fix it. Then they would have their court date. By the time the court date showed up,
they would have some other issue that they brought up. And it was kind of like this game almost.
And if they are savvy about it, they can really screw you over as a landlord.
And most states are nowhere near this strict or backwards,
but you should definitely be aware. Because some states, like D.C. obviously, I probably wouldn't
purchase a property with a tenant in there unless it was like some type of multi-family property.
But like, for example, in Virginia, I've purchased numerous properties with people in there.
And I don't have any issues with that because I know in the worst-case scenario, the eviction
process is pretty straightforward and pretty easy. Next up, if you're new to real estate investing,
you should try to go for base hits. Even if you're experienced, try to go for base hits.
I see too many, mostly new, investors that try to put together these like insane deals.
Like I'll always talk to new investors and they'll find some piece of land that could
be developed into like 10 townhouses. And this investor may have not even done a deal before.
And so I guess what I'm saying is you should start small. You should eventually go for bigger deals.
There's no point in just staying at smaller deals forever. But don't try to like put together these
insane deals that have all these variables, it might have like a five-year time frame,
if you don't have that type of experience. If you come from a construction background,
or you understand the permit system, or maybe you're partnering with a very experienced type of
developer, that's a whole nother story. But when you're getting started, it can be very easy to
overestimate how much you can make on a deal. Because you might just see some property that
could sell for like a million bucks, and you don't really fully understand the process,
the time frames, the type of loans you need to have, the costs that are associated with
doing large scale development projects and things like that, especially if you
haven't really done too many deals yet. Next up, and this is the mistake I made
on my first property, it's called the rule of a hundred. So you basically need to look at
a hundred properties. You don't necessarily need to look at all of them in person,
but you're looking for a mispriced type of deal. You're looking for something that's just obviously
a deal. When I first bought my first property, it was like a studio apartment. And I went to
two deals. One was a short sale and one was the studio and it was just like the cheapest thing
in town. So I purchased it. However, if I had evaluated 10, 20, much less a hundred different
properties, I probably could have found like an amazing diamond in the rough type of deal.
So no matter what you're looking for, you need something to evaluate. I had nothing
to evaluate it against. It was pretty much just the cheapest. But if I had been a little
bit more savvy and done some more research and just been a little bit more patient.
Warren Buffet always talks about they're basically just looking for just a mispriced
value on a business. In this scenario, on a piece of real estate. Because if you just look at 10
deals, you actually probably will find a pretty good deal if you choose the best out of 10.
But what's even better than that is the best out of 20, or best out of a hundred. You need
to be very selective with your deals and make sure you're really getting bottom of the barrel
price or some type of huge potential to add value. The next mistake is underestimating repairs. And
this is so easy to do as a real estate investor, especially if you're getting started. And the way
I recommend not making this mistake is starting on smaller projects, talking to contractors,
talking to different investors, and really getting an understanding of what it takes to do like a
full gut renovation, or what it costs to actually build a house. Because I had a property one time,
I was a hundred thousand over my budget, and for a lot of investors that would completely sink them.
And fortunately enough, I actually made money on the deal, believe it or not, but it wasn't a great
deal. It was a great learning experience, but it wasn't a profitable deal. I probably would not do
that type of deal again. And I could have avoided this type of scenario if I was a little bit more
careful with my repair estimate and a little bit more conservative.
Sometimes just doing like massive landscaping projects and things like that can really
add up. So when you're getting into some of these bigger deals, like six-figure rehabs,
development projects, things like that, you want to be even more conservative. Typically,
you might add like 10% to your repair estimate. If you're doing like a six-figure project, you
should probably almost add like 20%, especially if it's an older type of property. There's so
many different variables that can come up that we can't even go into on this video, but just trust
me on this. Add at least 15 or 20% if you're doing some large-scale type of rehab project.
Next step is getting insurance. So when you're doing any type of project, rental properties,
multi-family, rehabs, you need to be almost like over-insured. And I had a deal recently where
I had insurance on the house, but there was actually a retaining wall that collapsed. And I
got estimates between like $20,000 and $30,000. So that's just complete out-of-pocket expense right
there. And I could blame my insurance agent, I could blame my CPA, because we kind of had
some talks about what needs to be insured and that type of thing, and we all pretty much missed it.
However, it should have been on me. I should have asked, "Hey, this is like a pretty large retaining
wall." It didn't even really look like it was in that bad of condition. But you need to be almost
like proactive. And if you have any type of doubt as to if something's insured or not, make sure you
bring it up with your insurance agent and make sure that that's covered. Because 20 or 30K out
of pocket just as like a little surprise, it's not a great surprise, I'll tell you that much.
The next mistake is partnering. And I think this is more true on like rehabs and smaller projects.
On multi-family, I think it's okay to partner because it's just a different type of scenario,
if you're doing like larger multi-family type of deals. But on rehabs, there's no reason to
partner with your contractor. There's no reason to partner with a money partner. You can get lenders
to pay for the deal. I've done several deals where I just partnered with someone who basically
brought the money and brought the rehab budget, and we split the deal 50/50. But what I should've
done is just got in a hard money lender, or private money lender to fund the entire thing.
And then I wouldn't have to pay 50% to a partner. It'd be significantly less. I mean, we're talking
probably lost out on a hundred thousand dollars easily by partnering on different deals.
So I know it can sound really tempting to partner with your friend, and partner with a contractor,
lender, but do everything in your power not to do that. You can pay a contractor. You don't
need to partner with them. It's going to be so much less expensive to do that. And if you're
partnering with a friend, it can just, you might lose money and then your friendship could be over.
So the only time you should really partner is if you're like a complete newbie and maybe a more
experienced investor's kind of holding your hand and showing you how it's done.
But just be very careful about partnerships. Next step is having reserves. So by reserves,
I mean either cash or credit that you can rely on in case your budget runs out. If you had a 100K
over budget type of project, would you be able to handle that? And most people wouldn't.
So that's why when your credit's really good, you need to extend your credit lines, whether that's
just credit cards or personal lines of credit. Always talk to your local bank. Credit unions are
pretty good for that, as well as just more of the local bank. Wells Fargo just did away with their
personal lines of credit. But you should really try to extend as much as possible
just as like a safety net. Because if you're doing real estate investing,
sometimes you can be over-leveraged and it's not a good scenario to be in where you have to ask
people for money on a deal that you've already invested in. It's much better if you can just
rely on your own cash reserves or treasure war chest, as Dave Ramsey likes to call it,
or just some type of credit that you can access. The next mistake I see, and I've probably done
this a few times, is rushing a property to the market without properly optimizing it
for the market. What I mean by that is I'll see investors do an entire rehab, but then
they'll just take really sloppy photos. They might still have a few things that they're working on.
And they'll just put it on the market. And it just doesn't present that well. And then it sits on the
market. Then they have to lower the price. Then people wonder what's wrong with it. Then they
get a low-ball offer. And then they wonder why their property didn't sell for what their real
estate agent told them it would sell for. And the best way to fix all this is pretty
simple. Obviously, get professional photography. Don't do any discount type of listing or anything
like that where they might just take like iPhone photos or just have a few photos. Pay like 500,
a thousand dollars. Get the best photographer. A great photographer can make even the worst place
look pretty good. Not only that, but you should stage your property. And again, don't do any type
of discount staging. Maybe get a couple estimates from stagers, but staging really does help. If
you have like a vacant listing and there's nothing in it, the place just looks small, it looks cold,
it looks uninviting. So make sure you get a good stager, good professional photography.
And then finish all the work. I can't tell you how many times I've walked into properties where
they're still doing work on the house. And that's not a good sign. That just doesn't
look very good. I mean, buyers can't always understand. They think there's something missing.
It's just not a good look. So just make sure, just wait a week or two and then list the property,
just to finish those last repairs. If it's super minor, that's one thing.
But I see people, there's doors missing and windows that are taped up and stuff like that. So
make sure everything is in line and then get the professional photography and professional staging.
The next mistake I've made that's cost me tens of thousands of dollars is just choosing the first
contractor and also choosing the first tenant. The first property I ever had, I just rented it out
to basically the first person that contacted me because I was so excited. And if I did any type of
credit check or anything like that, I would have quickly realized it was a terrible candidate.
And within a month or two, she stopped paying. She painted the entire place like bright pink.
I basically had to evict her and it was a terrible experience. I mean, actually, it was probably a
good experience because it was a good learning experience. But now I'm super selective with
tenants. I mean, I might go through 25 different tenants just to find the best one. Actually,
I use a service now. But you need to be very selective about the tenants that you choose.
And this also goes for contractors and it also goes for deals. Like I was telling you about
the rule of a hundred. Look at a hundred deals and then find that one diamond in the rough.
And with contractors, you don't need to look at a hundred contractors, but make sure they have
licensed insurance and make sure they come referred. If the contractor meets those three
criteria, it's probably going to be a pretty good contractor. No contractor is going to be perfect.
But the likelihood of you having a successful deal is going to be significantly higher. A lot of
people just choose the first person that responds on Craigslist, or someone's cousin, or whatever it
may be. You need to have a filter and a criteria. It's going to make your project so much smoother.
The next mistake I see is that people are getting their advice from the wrong
people. So I think real estate investing, in particular, you will have everybody giving
you advice on it and giving you tips. And a lot of times, it's very negative advice,
very negative information. People discouraging you from doing it. A lot of people will say
real estate investing doesn't work anymore. Like it worked every year until this year. And I've
pretty much heard that from so many different people over the last like 10 or 15 years. And
you need to make sure you're getting your advice from basically the top of the pyramid. Because
the people at the bottom of the pyramid, they like to kind of tear you down and everything like that.
I've heard so many countless real estate agents say, "Oh, you can't do these deals.
You can't do those deals. You can't find these deals anymore."
But the thing is, they've never done one deal. So to them, that's probably true. Like you can't
find those deals. However, if you're asking someone that is actually doing deals, like an
active real estate investor, they're probably going to give you completely different advice.
And so why would you listen to someone that's not doing any deals. And the best way to find
these types of people are listening to podcasts, watching YouTube videos like this, reading books.
If you're getting negative advice from someone, if they're telling you you can't do something,
you got to understand where that advice is coming from. If that person's not an
active real estate investor and they're giving you real estate investing advice,
you should just be like, "What?" Maybe you don't need to necessarily start arguing with them,
but just think about where their advice is coming from. Because in real estate investing, you really
do have to focus and block out all the noise. So watch this video right here. And if you have
any questions or comments, drop them in the comment section below. And be
sure to subscribe to the channel for weekly real estate videos. See ya.