Real Estate Investing Basics

The Top 5 Most Costly Mistakes Investors Make

12 Articles Written
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We love to learn about investing through the successes of those around us, but the truth is that we really learn more from their mistakes.

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In this post, I want to outline some of the most costly mistakes that my company and I have made as real estate investors.

5 Common Costly Mistakes Real Estate Investors Make

1. Not having an inspection done.

An inspection is something that can literally make or break a deal for you, and foregoing an inspection to save a buck can be a very costly mistake. Unless you have had training or years of experience inspecting homes, I would highly recommend having an inspection completed on a property—even if you're buying from someone who you know and trust.

Sometimes sellers don’t really know what’s wrong with a property. It could be neglect; it could be ignorance. And although you can’t assume that you will be able to find out every nitty gritty detail about a property from an inspection, it can help you avoid particularly costly repairs. Plus, it allows you to negotiate some of those repairs with the seller.

For a few hundred dollars, an inspection could potentially save you thousands. We lost a few thousand dollars on a home we purchased that had some subfloor and window rot behind the sheetrock. If only I would have had a professional inspect the property, they would have quickly noticed that the windows weren’t sealing correctly, which caused serious damage over the years. Then, I could have easily used that information to negotiate the price with the seller.

Thoughtful hopeful African American employee looking at computer laptop screen, waiting hoping, person holding hands in praying position, expecting trouble solution, positive result, close up portrait

2. Taking a seller’s word.

As much as we like to see a transaction be a win-win for both sides, remember that the seller is likely offloading the property because there is a problem. Whether it’s a money problem, a structural problem, or a relationship problem, it’s still a problem. Don’t expect the seller to be your friend, and don’t expect them to be 100 percent honest.

Keep your guard up. My first sergeant once told me, “Trust in Jesus. Check on everyone else.”

Maintain that mentality when buying a home. We purchased a property that was supposedly fully occupied. There was little to no recordkeeping to verify income or anything else, but the deal was too fat to pass up. We purchased and found out later that some of the units had not been occupied in YEARS.

Again, a simple inspection could have shown us that, too. The seller simply wanted out and was willing to tell us everything we needed to hear. He seemed super nice—even bought me lunch. But the best wolves wear sheep’s clothing, so be on guard and follow your gut.

If a chocolate bar smells like a turd, it’s probably not a chocolate bar—no matter how much the seller says he eats.

Related: 5 Common Mistakes That Sabotage Fix & Flip Profits

3. Not paying extra for a sewer scoping.

This is a must for anyone buying an older home. We recently got a call from some tenants, saying the water was backing up when they ran the shower and did laundry simultaneously. A sewer clean out retrieved about five gallons of hairlike tree roots out of the old sewer lines.

Yup, a $200 sewer scope could have saved me $5,000. It’s a painful lesson, but the ones written in blood are the ones that you really don’t forget.

Young female decorator in empty room

4. Jumping into something that you don’t understand.

Always, always, always educate yourself on the investment class that you are looking to buy. You can never educate yourself enough, but having a solid foundation of knowledge will help you a lot as you move forward on an investment.

Never invest in something that you don’t fully understand. If you don’t understand the market, the money, or the details, you need to sit this one out. Understanding the market is huge. If you don’t know your target audience, you are setting yourself up for failure.

If you don’t understand the money, you also need to do some research and some math, or sit this one out. You need to know answers like where is your money coming from, where is it going, and who’s expecting it when. Larger deals get hairy and complex. If you don’t understand the money, you are likely going to get burned or go broke.

Lastly, you need to understand the fine details—particularly those relevant to your asset class. For example, I bought a mobile home not really understanding the hidden costs associated with them. For example, you have to register mobile homes annually like a car. Also, you can’t just go to Home Depot to get parts for everything; the plumbing is different and a lot of basic items are odd-sizes. Not to mention, a lot of professionals refuse to work on them for this reason. Understand what you are doing by finding someone who is doing it too and picking their brain.

Related: The Top 4 Financial Mistakes Mobile Home Investors Make

5. Not hiring a professional to do your work.

My last most expensive lesson is not hiring a professional to do the work. Professionals know building codes, ordinances, and a lot of other legal intricacies that can get an ignorant investor in hot water.

A good property manager is another professional to hire for your investments. I'm still out a few thousand dollars because I was too nice to tenants and too sympathetic as a self-manager. I admittedly have a hard time being the "bad guy." That's why I realized that management is a job better suited for someone else.

All the mistakes we made were avoidable—plain and simple. I hope you are able to learn from some of them so that you won’t have to repeat any!

What’s the biggest mistake that you’ve made investing in real estate?

Post a comment below!

Ryan Sajdera is currently serving as active duty aviation officer for the United States Army. He is a combat veteran of Operation Resolute Support, having served in multiple regions of Afghanistan, and also holds a bachelors degree in Health and Human Sciences. He is the President and Founder of R&S Property Group, LLC, and currently owns six multifamily units and a mobile home park with another park under contract. Ryan began investing in early 2016 with little to no money by utilizing the VA loan, and has since worked alongside his wife, Sarah to continuously grow and build their business with goals of achieving complete financial freedom through real estate.
    Joseph M. Rental Property Investor from Sacramento Area, CA
    Replied over 1 year ago
    They are all true, especially Rule #1. See my post [Home Inspector saved me a ton!] regrading how my inspector saved me a ton of $$$.
    Mark F. Rental Property Investor from Bergen County, NJ
    Replied over 1 year ago
    Thanks for the tips! Never heard of #3. Good to see another AD guy on the forum. Hoping to use my VA loan by mid 2020 for a multi. Seems like the first one is the hardest to get done so far.
    Tiarai Fields Rental Property Investor from Huntsville, AL
    Replied over 1 year ago
    Wow! This is good stuff, thanks for sharing!
    Landrus Cole from Chicago, Illinois
    Replied over 1 year ago
    Having made all the same mistakes in the pass . I sign off on this list 100%
    Landrus Cole from Chicago, Illinois
    Replied over 1 year ago
    The past hate spell check
    Sharon Rosendahl Investor from Stanwood, Washington
    Replied over 1 year ago
    I take no ones word who has skin in the game. An inspector that I choose is only in it for the money and will tell me what is there without the prejudice of wanting to get a good price or commission. I need to add sewer line inspection to the list. You need to know your abilities. I have been a landlord for 10 years. I can be nice, but only so far. I make sure my tenants understand the penalties but also let them know they should talk to me. I have a single dad who periodically has had a couple of issues with getting the money thing together on time. I generally don't charge him a late fee because he is an incredible carpenter (actual professional) and does a bunch of work for me for below market price on some of my units. Other than that, I've got tenants who don't think I'm that nice since I hit them with a $25 daily late fee starting on the 6th of the month. We are also very handy. We do a lot of our own work but know when to call that carpenter tenant or other professional to handle something.
    Anthony O. Porter Rental Property Investor from Atlanta, GA
    Replied over 1 year ago
    Thank you for the post. I would not have thought about #3 for older homes. At your convenience, would you please clarify what is considered older homes- Homes build prior to ??? Thank you!
    Kurt Alder from Panama City Beach, FL
    Replied over 1 year ago
    Great article, sir! I am a Marine looking to lat move into aviation next year. Best of luck to you.
    Philip Eide from Hunting Valley, OH
    Replied over 1 year ago
    Your article is right on target! As renovation project managers, we at PPR are often called upon after one or several of the 5 mistakes have been made. We asked to redeem their investment. Unfortunately for the investor(s) the mistakes have lead to unexpected costs. The original financials are now invalid and timelines are shot and they are off budget. All of these mistakes are avoidable if buyers utilize a Project Manager from a projects inception to the completion - This includes getting a forensic inspection before making the commitment. We have found that many individuals or groups with the wherewithal to invest in real estate, do not have the time or expertise to manage the process of buying, renovations, construction, etc. These unsuspecting buyers are often at the mercy of brokers, owners and contractors who are in it for the money and not for the buyers best interests! One of our recommendations is always to "Expect and Budget the Unexpected"!
    Account Closed
    Replied over 1 year ago
    Can a very experienced GC replace an inspector's inspection? Maybe a dumb question... but, wondering.
    Jeffrey Bower
    Replied over 1 year ago
    I definitely agree with jumping into something that you don’t understand. Sometimes the advice given to new people who stated that they are new to real investment on BP seem wrong. Why are they being told to go big?
    Huiping Sheng Homeowner from Tampa, FL
    Replied over 1 year ago
    After read this one, I immediately called the plumber for a sewer scope on the coming inspection time.:-) Thanks for this nice sharing!
    Douglas Montgomery
    Replied over 1 year ago
    Another great article, Ryan! Definitely going to get a sewer scope at the house I'm working on!
    James Lester from Columbus GA
    Replied over 1 year ago
    Great comments! However just remember than NO inspector can see behind walls to find termite, mold or other damage. And they cannot see in the plumbing as well. As a Realtor and Contractor who has flipped many homes and sold many investment properties I agree with the REQUIREMENT for a home inspection but be sure to hire one who has experience in the older homes - especially when there is not updated wiring and galvanized plumbing (sewage pipes). Good luck to all.
    Dave Rav from Summerville, SC
    Replied over 1 year ago
    Great points! I'm a fairly seasoned investor of 12+ years and was considering foregoing an inspection on a property...your post has me thinking 2x I esp like your #4 point - not jumping in unless you're educated. Let's face it buying RE is a big deal. It ain't like buying a gallon of milk at the store. A very major screw up can sink a boat!
    Arya Jackson from San Francisco, Bay Area
    Replied over 1 year ago
    Thanks for these tips Ryan! Number 5 is important, hiring professionals will say you money and time to achieve exactly what you want.
    CJ S. Investor from Tulsa, Oklahoma
    Replied over 1 year ago
    Sewer scoping was not even on my radar but it is now.
    Moshe Strugano Attorney from Israel
    Replied over 1 year ago
    Investors should always seek professional guidance so that their choices doesn't go wrong.
    Account Closed Attorney from Na
    Replied over 1 year ago
    Great stuff Ryan!
    Katie Rogers from Santa Barbara, California
    Replied over 1 year ago
    "... remember that the seller is likely offloading the property because there is a problem. Whether it’s a money problem, a structural problem, or a relationship problem, it’s still a problem. Don’t expect the seller to be your friend, and don’t expect them to be 100 percent honest." Tattoo this (metaphorically) on your forehead, and think about it no matter how plausible the seller or seller's agent story may be. Also, make sure your home inspector is okay with you following him around. If your home inspector does not want your to accompany him, hire a different home inspector. Then ask for the implication of any defect he mentions. If you do not accompany the home inspector, you may discover too late that the written home inspection report diplomatically treats serious problems as lightly as trivial problems. You want to hear what the home inspector says "off the record."
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied over 1 year ago
    The sewer scope is something that is really key (although probably not on new houses) and is missed by a lot of investors.
    Eva Neikirk Rental Property Investor from Austin, TX
    Replied over 1 year ago
    Yes, indeed, I agree with all of the above, and have learned from violating all of the above. I love older (1920s and 30s) houses for their character, and bought my first house at auction at a very good price. After basic renos and first tenant in, tub and toilet backing up. Had to replace the sewer line...around now huge 80 year old oak trees with substantial root system. Then the sewer people broke the water line and didn't say anything...a year later the tenant complained about the wet squishy spot in the front yard...water line, another $4500. But I still love the house, and the tenants pay the costs in rent. Now I'm cultivating competent contractors and caring property managers. And invest more intelligently.
    Chavez Mark
    Replied over 1 year ago
    Why did the sewer scope cost $5000 instead of $200 after the tenants moved into the property?
    Janel York Investor from Minneapolis, MN
    Replied over 1 year ago
    This is so helpful! And I never even heard of #3. Thank you for the article.