Common mistakes newbies make? What to look out for

17 Replies

Hey guys, I see a lot of experienced investors here who have at least had one deal under their belt. Everybody has been a newbie at one point. What is one thing you wish you had known when you first started out, what would you advise to look for, and what are some common mistakes and misconceptions you see a lot in newbies? I appreciate you guys taking the time to read my post. Can’t wait to see some of your insights 

Unless you’re willing to read, learn and understand your local landlord/tenant laws use a PM.

So many of these tenant issues or questions or complaints can be solved by using this.

@Ian Jackson

The two things I hear most now are, (1) overreliance on the MLS to look for deals, and (2) a misplaced certainty that this is all about numbers.

1. I have never bought a property off the West Penn Multi-List. I make sure I have access to my target zip code in it through a local realtor to keep my eye on the retail market, to see how people are selling houses at and at what prices in my area. In the last four years that I've been doing this, with about 2-8 properties going on the MLS in that zipcode EVERY DAY popping up in my inbox, I have seen maybe TWO deals worth going after on the MLS. And these were not fantastic deals, extraordinary deals, deals to die for. They were...meh deals. If you think that's where you're going to find the bucks hiding in plain sight, you're wrong. Everybody and his brother has access to the MLS. In an economy like this one, you need to look elsewhere for deals.

2. I am a control freak, I freely admit. When it comes to buying a rental property, I do my best to buy properties that have a decent chance of lasting the twenty years I intend to operate them with minimal upkeep after the initial turn. I look hard at the structural soundness and mechanicals of a building. I poke at the siding. I go up on the roof. Before I'm in the bedrooms I'm in the basement. This is how you check out a building.

But here on Bigger Pockets, every third day, a newbie thread pops up that reads like: "Hi guys, look, my first deal! The owner won't let me go onsite but he's offering me a price that makes the property I'm looking at beat the 3.1415926535% rule! I'M ON MY REAL ESTATE JOURNEY!!!! (#don'tstopbelieving)"

Who cares about the rules and calculators if the place if falling off a cliff or a basement wall is severely bowed or if the roof has a hole in it? How does math save us from a need for common sense?

There's money in real estate. There is very, very, very, very, very little getting-rich-quick for the ignorant and the inexperienced in real estate. I wish more people would understand that.

@Dusty Lewis I understand that. You doing right by yourself asking questions. I think the way I got started was YouTube video explaining all the different types of no money down strategies and looking into each one through another video and another, oh and be ultimate beginners podcast is I think could be helpful as well. Best of luck on your journey 

read and learn. If you don't know the terms, learn them. Then learn the strategies. Then select a strategy. Then find a deal. Then tell everyone to include Bigger pockets about the deal to make sure everyone agrees with you it is a deal by sharing your calculations. Have your agent and inspector confirm. Then if you are renting, follow the bigger pockets guide to screening tenants. then follow all of the rules. Then consult BP if you have read all of below/ blogs/ podcasts and still have questions.

https://www.biggerpockets.com/real-estate-investin...

https://www.biggerpockets.com/renewsblog/2013/01/0...

Originally posted by @Jim K. :

@Ian Jackson

The two things I hear most now are, (1) overreliance on the MLS to look for deals, and (2) a misplaced certainty that this is all about numbers.

1. I have never bought a property off the West Penn Multi-List. I make sure I have access to my target zip code in it through a local realtor to keep my eye on the retail market, to see how people are selling houses at and at what prices in my area. In the last four years that I've been doing this, with about 2-8 properties going on the MLS in that zipcode EVERY DAY popping up in my inbox, I have seen maybe TWO deals worth going after on the MLS. And these were not fantastic deals, extraordinary deals, deals to die for. They were...meh deals. If you think that's where you're going to find the bucks hiding in plain sight, you're wrong. Everybody and his brother has access to the MLS. In an economy like this one, you need to look elsewhere for deals.

2. I am a control freak, I freely admit. When it comes to buying a rental property, I do my best to buy properties that have a decent chance of lasting the twenty years I intend to operate them with minimal upkeep after the initial turn. I look hard at the structural soundness and mechanicals of a building. I poke at the siding. I go up on the roof. Before I'm in the bedrooms I'm in the basement. This is how you check out a building.

But here on Bigger Pockets, every third day, a newbie thread pops up that reads like: "Hi guys, look, my first deal! The owner won't let me go onsite but he's offering me a price that makes the property I'm looking at beat the 3.1415926535% rule! I'M ON MY REAL ESTATE JOURNEY!!!! (#don'tstopbelieving)"

Who cares about the rules and calculators if the place if falling off a cliff or a basement wall is severely bowed or if the roof has a hole in it? How does math save us from a need for common sense?

There's money in real estate. There is very, very, very, very, very little getting-rich-quick for the ignorant and the inexperienced in real estate. I wish more people would understand that.

 What's your go-to method for finding deals Jim?

Biggest mistakes are failing to understand rehab costs ( always know what it’s going to take to get the place where it needs to be ) and failure to have reserves after they get the property going . You could be one furnace or roof away from bankruptcy if you don’t think ahead . Jim k
Comments are worth their weight in gold . That’s some great wisdom

I'd say some of the biggest mistakes new landlords make are not properly screening their tenants, not sticking to their rental criteria after screening a tenant, not requiring renter's insurance, and not insuring their rental property. By not thoroughly screening your prospective tenants and not sticking to your rental criteria, you can end up having to evict someone (which costs you a lot of time and money) or have your property damaged. In addition, making sure your property is properly insured on both ends can protect you from having to pay thousands of dollars to fix damages. Hope this helps! 

When analyzing a property, you must include ALL your expenses with REALISTIC numbers. You wont get it exactly right, but its easy to get fairly close if you do a bit of research. Many new investors forget to factor in for:

  • vacancy: 5-8% is about right in most markets 
  • regular maintenance: my experience has been apx $70/m/unit
  • CapEx: my experience has been apx $70/m/unit

@Josh Howard

We bought estate sales from an agent who found the off-list properties for us. You need to find the right agent to make this work. I've been telling people on BP to do as we did. Go through master plumbers and electricians in your target area until you get a consensus about someone who tends to work with selling houses in less than optimal condition.

Allegheny County, where I live, maintains an on-line registry of county-registered master plumbers, just as the Commonwealth of Pennsylvania maintains a searchable list of registered home improvement contractors. I went down the list and called plumbers until I found double recommendations by tradesmen for the same agent.

I cannot believe this is a new thing to Bigger Pockets, but it is, sadly. How else do beat-up properties get fixed before they're sold? The seller's agent insists, and if the agent insists enough, he has a list of local tradesmen he knows can reliably get jobs done. Sooner or later, the tradesmen figure out that this guy tends to sell a lot of distressed property for and to investors.

Actually, this question feeds right into another gripe I have about new investors and the mistakes I see them making here on BP. If you're going to invest in an area, especially your local area, learn how online community services in that area work. Learn how properties are taxed. Learn how tradesmen are registered. Learn to look at local public court records. Learn all the different LOCAL things about an area that you can't learn in a general seminar about real estate investing, that don't translate from place to place. Learn where the numbers lie.

For instance, in my county, there's an online real estate portal. It tells you the date when a property was first built. What you don't know unless you've gone down to the courthouse and actually looked at recorded deeds in the deed books is that Allegheny County really has no record of this. You can look through the deeds to a piece of land and figure out that yes, a property was erected in 1920 by this buyer of the original plot. That's what the document custodians did. But it's easy to make a mistake. There are plenty of properties built in the 1920s that are listed in the local register as being built in the 1900s. You never really KNOW until you've been down to the courthouse and checked the line of deeds for yourself, and even then you can't really be absolutely sure. The data that's in the real estate portal is a bored local functionary's guess.

But there are plenty of people here on BP talking about my city who quote that date as if it were gospel in analyzing their buy, because they don't know and can't be bothered to learn. There's often a certain fecklessness about new investors when it comes to numbers that they find with their computers that screams that failure is on the way.  The info in online public databases is only as good as the people who put it in, and it should be obvious you can't scrape the bottom of the barrel harder and get worse than local government employees working on something as boring as property records. And yet, to new investor after investor -- that junk is treated like gospel just because it managed to end up in the virtual world.

@Jim K. the biggest problem with the county records that you didn't touch on is the use code. Two Family, Three Family, Etc. 

That's what the county has, but to make sure if it's legitimate you need to request the actual occupancy permit. 

The age of house thing would be lesser to me than the actual use code. 

@Anthony Angotti

I own a property in the municipality of Munhall that's listed as being in the municipality of Homestead in the portal. The county employees updating the thing literally can't find their own...

I think both the use code that you mention and the date both end up listed in the Zillow profile of the property. And as we all know, if it's on Zillow, it HAS to be true, right?

My point is that automation in information technology only works as well as the information that's put into the system. Garbage in, garbage out. In Allegheny County at least, and I doubt this county is particularly exceptional in that regard, garbage is the high king and prefect and that's not likely to change.

Trying to be too cheap (Time or Money), not willing to spend a little up front to avoid a catastrophic failure later.  Examples:

Not paying $500 to scope the drains/sewer when buying a 100 year old house.

Not paying an attorney to draft your lease, or at least review it.

Not willing to spend the time to find out before closing if the rewires, remodels and additions to a property was properly permitted work.

Using the cheapest/flimsiest repair parts on something when you know that will just break again even sooner than the last time.

Generally the cheapest of anything is usually the more expensive option.  I bought the highest end lawn mower I could and it has lasted 20 years, the first 10 of which was professional use for about 6 hours of running time daily.  Yet that mower was only $1,200.