Personal Development

Want to Lose All Your Money & Cry Yourself to Sleep? Make These 4 Newbie Mistakes!

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP, Real Estate Investing Basics
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newbie-mistakes

You know that I love you, right?

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Maybe not the “I want to have your baby” kind of love, but the “I’m about to yell at you, and I’m doing it because I care” kind of love.

Don’t you feel special?

Now, as the title suggests, this post is geared toward newbies.

But what’s a newbie?

I would define "newbie" as anyone who doesn't feel like they "know it all" in real estate yet.

Yes, that means you. And me. And of course, Ben Leybovich. (But not Brian Burke, ’cause that guy really does know it all.)

So, really, this post is for anyone who is trying to build their real estate empire.

That means you! So keep reading.

 

These are the four mistakes newbies can’t seem to help making — but not if I have anything to say about it!

1.) “I Can Do It All Myself! I’m Superman!”

As a real estate investor, you wear a LOT of hats. giphy

One day you are a home inspector. The next day a master negotiator. The next a marketing wizard. Then a manager. Sometimes a plumber.

And that’s not a bad thing, necessarily. When you first start, you don’t have a lot of cash to use to hire other people, and you need to use what you have.

However…

The problem is newbies tend to stay in that state for FAR too long.

Like, years.

If you are trying to build a real estate business, begin thinking NOW about the systems you can outsource. Can you hire someone to clean toilets while you look for deals? Can you hire someone to answer phone calls and pay them on a per-deal basis? Can you buy such great deals that the cash flow covers management?

(And yes, Ben, you can buy properties that cash flow enough to cover management! You just gotta look harder! 😉 )

2.) “Math?? Who Needs Math!? I Have Intuition!”

200-2I just know this is going to be a great investment property!”

Related: 4 Toxic Habits That Sabotage Even the Most Promising New Investors

No, you don’t.

Not unless you’ve run the numbers — and run them correctly.

Newbies tend to do far too much "napkin math" that will never soak up the mess they are about to make. They look at broad numbers, like "total income" and "the mortgage payment," and assume anything else is profit.

The truth is:

There are a lot of potential expenses you should be aware of when analyzing a real estate deal.

For more on this, read “How to Accurately Estimate Expenses on a Rental Property in 3 Easy Steps.”

3.) “Sure… It’s OK… I Like Being Stepped On!”

Management is a MAJOR part of the real estate investing game. (So much that we wrote an entire book on it.)200-3

And I'm not just talking about rentals, either.

Whether you are doing flips, wholesale deals, landlording, or whatever — you need to manage what gets done to make sure it gets done correctly.

Let’s specifically look at rental property investing. Newbie landlords are notorious for being far too soft on their tenants.

“Sure, it’s okay to have that 90 pound dog, despite the no-pet policy. I am a dog person, too!”

“I understand, just pay me what you can, when you can.”

"Oh, OK. No problem. I know you had a lease, but how can you pass up a deal like that?"

For all you newbs out there who are tempted to say these things to your tenants, let me tell you three words that will completely change your landlording forever:

Firm but fair.

Don’t be a jerk, but have rules and stick by them. When rent is due on the first of the month, charge a late fee if it’s not in. If you have a no-pet policy, make them get rid of the dog.

I know it feels like you are the bad guy, but trust me: If you give a mouse a cookie, he’s going to ask for a glass of milk. In other words, if you let your tenant ignore your rules, they will walk all over you. Soon you’ll have to evict them, and then everyone loses.

Related: 3 Common Misconceptions About Real Estate Investing Newbies Believe

The same applies for employees, contractors, vendors, etc.

Don’t be a softie. Manage firm but fair.

4.) “I Love Buying Cheap Properties!”

Do you know the difference between price and cost? 200-4

Don’t feel bad.

Most people don’t.

Price is the amount you pay for an item, i.e. “The price of those shoes is $20.”

But the cost is much different. The cost is the long-term amount you’ll pay for something.

And I’m not just talking monetary.

For example, the price of a cheap pair of shoes might be $20 from Costco.

But the cost? Well, those shoes are going to last me six months, max. Then, I’ll need to get another $20 pair. And then another. And the pain in my foot from running in cheap shoes that’s going to just get worse over time.

Clearly, the cost of those cheap shoes was much higher than the price.

The same applies to real estate. Price and cost are very different. A property might have a low price, but the long-term cost of owning that property might be much higher.

Most of my early properties had a low price, but an extremely high cost. And again, I’m not just talking monetary. Some of those cheap deals take more management time, cause more headaches, and raise my stress level FAR higher than properties that I’ve purchased with a higher price.

I’m not telling you to go buy expensive properties.

I’m simply warning newbies to understand that just because a property is cheap doesn’t mean it’s a good deal. The cost might be far higher than you want to pay.

===

OK, I’m done yelling at newbies!

Let’s get out of here.

But first, now it’s your turn. What mistakes do YOU fear making in your investing business? Or what mistakes do you see other people making?

Take a minute and leave me a comment answering one of those questions.

 

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He is a nationally recognized leader in the real estate education space and has tau...
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    Simon Cox Real Estate Agent from Dearborn, MI
    Replied over 4 years ago
    Timeless reminders, thanks Brandon!
    Brandon Turner Investor from Maui, HI
    Replied over 4 years ago
    Thanks Simon! Appreciate you stopping by!
    Alex Franks from Rock Hill, SC
    Replied over 4 years ago
    Have to agree with Simon, some solid lessons. I can speak for myself, I lost it all twice in the is real estate business. Incredible lessons along the way that I learned. These should more or less be rules in place for all beginners , entering in this business. Keeping in mind 16 almost 17 years ago. Social media was not yet here.I did however have a juno email account. Alex
    Carol Pollard Real Estate Agent from Punta Gorda, FL
    Replied over 4 years ago
    I too lost everything by doing it my way. I am just now getting back into investing but this time I am doing it the way other successful real estate investors do rentals and real estate.
    Christian Bors Real Estate Agent from Camp Hill, Pennsylvania
    Replied over 4 years ago
    A common mistake for newbies is estimating rehab time (especially if you are doing the work). My first brrrr I thought would take me 3 months. Wrong! It took me 7 months. I had a tenant move out which needed to completed be remodeled. Estimated it would take 2 weeks. Wrong, it took me 4! Double your rehab estimate if you are a newbie. So much better to over estimate then under.
    Brandon Turner Investor from Maui, HI
    Replied over 4 years ago
    SO true Christian! Yeah, I generally tell newbies – double your timeline, double your budget!
    Jon Hicks from Prospect, Kentucky
    Replied over 4 years ago
    Trust…but verify 🙂
    Ekaterina Gelashvili from Staten Island, New York
    Replied over 4 years ago
    Thank you Brandon,great info. i definitely will look for turn-key properties for my first investment, what you guys think? is it good or bad? thnks Ekaterina
    Brandon Turner Investor from Maui, HI
    Replied over 4 years ago
    Hey Ekaterina, it can be okay – but there are some dangers. Read this! https://www.biggerpockets.com/renewsblog/2015/02/19/turnkey-real-estate-investing/
    Ekaterina Gelashvili from Staten Island, New York
    Replied over 4 years ago
    Thank you Brandon! i will do investigate further. for me i think its the only way because i am in NY and market here is bad. i was thinkin midwest maybe indiana. thank you so much that you do for us new investors, we appreciate it . have a wonderful week!
    Mike McKinzie Investor from Westminster, CO
    Replied over 4 years ago
    Here is another one. Make sure the expert who is mentoring you is a true expert. Early in my career, I had an agent talk me into a house for $120,000 swearing it would sell for $150,000. Three years later I sold it for $80,000. But revenge is nice, I retired five years ago and that agent, who is 14 years older than me is still hawking over priced properties!!!!
    Jessie Niu from Columbus, Ohio
    Replied over 4 years ago
    Love you story, Mike!!
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied over 4 years ago
    Very good list! I would add trusting a pro forma and buying out-of-state without doing really, really thorough due diligence up front (or believing that just because properties are much cheaper than where you’re from that that must mean they are a good deal).
    Roberto Escapita Jr from El Paso, Texas
    Replied over 4 years ago
    I fear the “what if it doesn’t work out?” I recently found my potential mentor here locally, in which, he’ll guide me, show me the ropes as long as I do my part and more for the team! It’s scary but exciting, so I said to him ” I’m all in! I’ll do whatever it takes to contribute!” He replied, “that’s what I like to hear.” Exciting, isn’t it? Great article by the way! You motivate me so much Brandon! You’re going to be one of those guys on my list that changed my life for ever that I’ll be indebted to.
    Jessie Niu from Columbus, Ohio
    Replied over 4 years ago
    Brandon, your podcast and Webinar are my good mentors too! 😉
    Alan Mackenthun from Prior Lake, Minnesota
    Replied over 4 years ago
    I’ll 2nd #4. I’ve got 12 doors. 8 townhomes and 1 4-plex. The townhomes were built between 1994 and 2007. The 1968 4-plex requires more maintenance way more maintenance than all of the other properties put together. Early on I bought one house at about 1/3 the cost of my townhouses. It was in a not so good part of town and was built in the early 1900’s. It took forever to get it rehabbed and every project took longer than expected because nothing was square and construction techniques from 100 years ago just don’t cut it in the 21st century. I couldn’t find decent tenants and they didn’t last long when I did. If you’re buying cheap properties make sure to bump up your maintenance budget (I’d say times 4) and expect higher vacancies (Maybe 12% vs 4%). I get higher rents with much less maintenance and vacancies in my townhouses. I’d also add one thought. Investing out of state. I haven’t learned this 1st hand, but I’ve seen a number of other people invest out of state and get taken. It’s just a high risk proposition.
    Deborah Fox
    Replied over 4 years ago
    Great , fun read. As a “Prudent Number Cruncher”, I particularly enjoyed your comments about math in point #2. One suggestion for the “Math” portion – document your assumptions used to determine your numbers and date it. Monitor and evaluate the difference at the end of the project. Update assumptions for next project. Repeat. This process helps you remember what you were thinking at the time, explain it to others, and learn from the process over time. All the best!
    Nick Muncan
    Replied over 4 years ago
    Being a “newbie” I can’t get enough of these tips. Good stuff!
    David Lopez Rental Property Investor from Coopersburg, PA
    Replied over 4 years ago
    Very true to all of your points. DO THE MATH, and never ever buy on intuition. As a newer full time investor in the FL market you need to know the numbers because the home prices here are so up and down from one street to the next research is key and necessary to avoid losing your shirt. If I can offer one good tip is you need to become an expert at every aspect of your project. This does not mean you need to do the work but inspect often and read as much about the materials, installation, and effects of weather, material makeup, and everything else you can get your hands on. Cheap is not always better. This goes for home prices and materials also. Know what people like in the market and what is acceptable. Maybe you don’t like tile floors but they sell in the market you are currently working in. If something does not seem right open your mouth because fixing it when the project is done will cost you a ton of grief and probably money. I learned this with a recent floor installation I had completed. While I know floating floors inherently make some noise depending on flatness and underlayment the 3000 sq/ft I was having installed sounded a little louder than normal. My gut said say something but I was pressed to finish and all of their other work was perfect and it looked great overall. That noise is now the biggest negative comment when people walk through. I will never install this type of floor again without figuring a glue down process, even though it increases the price by 20-30% for materials, because that few grand would have possibly not only saved me money in the long run,. it would have probably gotten me a quick offer above my estimated ARV. So now $2500 for staging later and some minor repairs I am hoping to still meet my goal but am sure I lost added profits because of lost buyers early on. Good luck to all and if you have any other questions I have many more stories or experiences that may help on your project. Feel free to reach out. Regards, Dave
    tillamookguy
    Replied over 4 years ago
    Loved your story Dave, I wish I could talk with most people doing jobs like this. I was an apprentice plummer, an apprentice electrician, a journeyman carpenter. I never had the time for TV (never even had one in the house) always studying and learning new skills. I am an expert in every skill in house construction, floors, drywall, plumbing, wiring, roofing, framing, HW floor laying, painting and have an investment in tools of about 250k. One of the things that is hard for me is trying to convince clients to do it right the first time, I like to tell clients I’m the laziest guy on earth I like to do it right the first time because I’m too lazy to do it twice.
    Jeff Moore Real Estate Agent from PCB/30A Florida and St. Thomas USVI
    Replied over 4 years ago
    Good article. I am definitely guilty of looking at the broad numbers when evaluating properties. That was a great line about the napkin not being able to soak up the mess they are about to make. I am in the middle of a reno on a duplex right now. This is the first time I’m hiring someone to replace some windows and doors instead of doing it my self. I am feeling smarter already and my back is thanking me as well.
    David McLean Rental Property Investor from Chattanooga, TN
    Replied over 4 years ago
    Enjoyed the article, Brandon. Thanks!
    Sara Hill from Albuquerque, NM - New Mexico
    Replied over 4 years ago
    Great post Brandon! I loved the insight about Price and Cost but don’t be knockin on my Costco shoes, they are comfortable and affordable.
    Kevin Banks from Nashville, Tennessee
    Replied over 4 years ago
    I’m scared of paying to much which has led to many deals lost to customers who bought properties at full price.
    Scott Wright
    Replied over 4 years ago
    You mean you miss out on some deals? This reminds me, I used to work with someone involved in stock market investing. He would frequently say “I would rather be out of a trade wishing I was in, than in a trade wishing I was out.” In other words, I’d rather miss a deal I wish I took, rather than wishing I didn’t get into a bad deal.
    James Stokes Real Estate Investor from Egg Harbor Township, New Jersey
    Replied over 4 years ago
    I had made the mistake of not accounting for the sewage bill. I was glad to have enough margin to still net over 14%. Keep teaching a teacher Brandon.
    Timothy
    Replied over 4 years ago
    Working on my management skills at the moment. Definitely a weaker area for me, but I learn something new every day it seems. Didn’t realize Bigger Pockets had a book covering this topic. Will definitely have to add it to my list.
    Brian Kehoe Investor from Brooklyn, New York
    Replied over 4 years ago
    Great post Brandon. It’s articles like these with the addition of your podcasts that has me highly motivated for 2016. Thanks for keeping this newbie with a positive mindset to make my goals a reality.
    David Taylor from Clio, Michigan
    Replied over 4 years ago
    As a complete newbie to all the processes, info like this for free is just plain awesome! A lot of other ways to invest take you over the coals to learn or find specifics so thank you for all the knowledge being lent.
    Ken B. from yucca valley, ca
    Replied over 4 years ago
    My biggest fear would be appraising a value incorrectly on repairs or major renovations (roof,electric,or whatever) needed within a year or so and how too properly deduct,if that makes since.
    Robert Muzyka Real Estate Agent from Plano, TX
    Replied over 4 years ago
    I fear not running the numbers correctly, because in my mind I don’t know enough to make accurate assumptions on costs (repair costs, closing costs, etc.).
    Chris Harmer from Mc Kinney, Texas
    Replied over 4 years ago
    Great article! Wish I had read it nine months ago- but maybe if I had I wouldn’t have known to take it to heart. I’m all ears now!
    Thomas
    Replied over 4 years ago
    Thanks. Have been running lots of math recently looking at student rentals. So far nothing great. But there are better ones out there. Just need to wait.
    Chad Carson Investor from Clemson, SC
    Replied over 4 years ago
    Ha, Ha. Well-written, Brandon. And I love the hilarious pictures beside each point. Where’d you get those?!
    Steve Vaughan Rental Property Investor from East Wenatchee, WA
    Replied over 4 years ago
    Nice article of great tips! I would add over leveraging. Dangerous to borrow from retirement and everyone and anyone you know just to get a deal. Cheers!
    Don Alberts from Frankfort, Illinois
    Replied over 4 years ago
    Brandon thanks as always. Howz the wife doing. God Bless. Don
    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied over 4 years ago
    great article Brandon
    Carrie Brown Wholesaler from Somerset, New Jersey
    Replied over 4 years ago
    Thanks Brandon. I promise to learn how to accurately run the numbers and run them before moving on a deal.
    Demetrius Gresham Investor from San Antonio, Texas
    Replied over 4 years ago
    Thanks Brandon. Useful information as we start shopping for our first deal!! Excited!
    Karl B. Rental Property Investor from Columbia, MO
    Replied over 4 years ago
    This quote made me grin because it’s true and I’m using it: “If you give a mouse a cookie, he’s going to ask for a glass of milk.”
    Ali N. from Bethesda, MD
    Replied over 2 years ago
    My greatest fear is rental rates being too low to cash flow, and overpaying for a property. I’m afraid of inflated rental income estimates by sellers and agents despite doing my own extensive research and then have it be lower in reality. Basically I fear cash flowing negative. I’m one of those guys that’s read a bunch of books but i’m stuck worrying about losing and going bust. I have a friend that made it big during the 2000’s boom and lost half his rentals to foreclosure when the market crashed. He was lucky he didn’t lose everything so he’s still rich but the foreclosures haunt him to this day.
    Frances C.
    Replied over 2 years ago
    Yawn. This particular really is what might think many of us start discussing budgeting, but don’t be mistaken, ensuring a person need to manage your financial circumstances effectively could the distinction between completing your degree or diploma making use of rest of the friends and dropping the university regarding your own when you couldn’t manage to feed yourself.