The Biggest Mistakes You Seen Being Made by First Timers

Real Estate Agent · Melbourne, FL · Member since 2015 · 23 posts · 18 votes

Hey guys, absolutely love this site and everyone on it. I'm just about to jump into the Buy & Hold side of REI and just wondering if anyone has any classic mistakes that they would see a first timer like me make consistently.

*Insert a quote about learning from the mistakes of others etc etc.

Would really appreciate the heads up so I can make a smart move into Buy & Hold investing.

Cheers :)

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Steve RozenbergPro Member

Specialist · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes

10y

Never factoring in for problems with maintenance or vacancy issues, buying too many homes in too short of a period without letting any problems work themselves out before buying more. (20 homes in a year and a half, then another 15 over the next 2 years)

I was undercapitalized on my acquisitions and thought that buying more properties and letting the cashflow from the other rentals offset any cash infusions I might need.

Lastly trying to have a cheap business model (Cheap vendors, cheap properties, cheap everything) not the best way to operate because all I attracted were other cheap minded people only interested in taking my money and not having a common goal.

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Phil Earley
Property Manager · Cumming, GA · Member since 2015 · 261 posts · 199 votes
10y
Handing the keys over to a family that should have been denied with proper screening.....and now the fun begins:)
0 Reply
Jaison Emmanuel
Investor · Missouri City, TX · Member since 2015 · 70 posts · 19 votes
10y
Having a good exit / backup plane (strategy) for everything your properties needs to live to make you money!
0 Reply
Ann Howell
Investor · Houston, TX · Member since 2014 · 128 posts · 87 votes
10y
My biggest mistake so far has been not trusting my gut. I trusted people I was working with who had experience. When things started going wrong, I stayed in the deal thinking my concerns were because I was a newbie investor. I have good business instincts, even if I don't know everything about REI, and I should have listened to them.
2 Reply
Jim C.
Investor · IN · Member since 2012 · 263 posts · 168 votes
10y
How about NOT buying on emotion??? Gee, that house has the cutest, oldest kitchen ever! My stuff would fit in here just great!
0 Reply
Rich Waite
Eldon, IA · Member since 2015 · 3 posts · 2 votes
10y
Falling in love with the property instead of the deal. The property means nothing if the numbers don't make sense. I only jump in on a deal if the calculator screams to me, "buy this now".
0 Reply
Kevin C.
Investor · McKinney, TX · Member since 2009 · 405 posts · 160 votes
10y
Believing a tenant when they say "I'll have the rent next week, I promise".
Not starting the eviction process when all the signs are there, like when the tenant gets later and later on the rent every month. Then absolutely don't be the fool that renews that tenants lease (the one that was getting later and later with the rent and dodging your calls).
Yeah, I was that fool, cost me plenty a few months into the new lease when they stopped paying and I had to evict. Then of course the house was trashed when I finally got it back. That was a $10K lesson! Lesson learned.
0 Reply
Manuel Gonzalez
Lake Jackson, TX · Member since 2013 · 119 posts · 34 votes
10y
Emotionally rehabbing a rental like if i was going to live in it just extra money out of pocket
0 Reply
Zana Blue
Investor · Saint Augustine, FL · Member since 2015 · 227 posts · 61 votes
10y
Listening to those who said "you can never go wrong with waterfront property"...
1 Reply
Nancy E.
Rental Property Investor · Charlotte, NC · Member since 2015 · 128 posts · 29 votes
10y
Hello @ Jonno Rushbrook
Newbie Mistake -- Believing the agent at “face-value” without doing your due diligent to check everything from number to stats, before signing a RE contract.
From Nancy
0 Reply
Derek Boone
Investor · Philadelphia, PA · Member since 2015 · 2 posts · 2 votes
10y
Originally posted by @Steve Rozenberg:

Never factoring in for problems with maintenance or vacancy issues, buying too many homes in too short of a period without letting any problems work themselves out before buying more. (20 homes in a year and a half, then another 15 over the next 2 years)
I was undercapitalized on my acquisitions and thought that buying more properties and letting the cashflow from the other rentals offset any cash infusions I might need.
Lastly trying to have a cheap business model (Cheap vendors, cheap properties, cheap everything) not the best way to operate because all I attracted were other cheap minded people only interested in taking my money and not having a common goal.
0 Reply
Account Closed
New to Real Estate · Fayetteville, NC · Member since 2015 · 51 posts · 6 votes
10y
@DavidNolan Please contact me. I have advisor questions for you.
0 Reply
David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
10y
I'd have to agree with @Steve Vaughan about education, but for a different reason, well summed up by this graphic:
@Jeff S.'s post (page 1 of this thread) is a prime example of newbie mistakes due to lack of education.
That said, of course, I did see an article about a youth in a poor community who learned to build water-pumping and electricity-generating windmills just by reading at the library. I dare say he's the exception, and not the rule.
0 Reply
Linda WeygantPro Member
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
10y
Not doing a thorough enough background check on tenants.
Podcast Guest on Show #244
1 Reply
Account Closed
Investor · Loveland, CO · Member since 2015 · 24 posts · 3 votes
10y
1. Not realizing that every mistake, even a little one will cost you money.
2. Not doing basic number analysis on the property. Check prior sales prices on that property and others around it.
3. Not looking at the neighborhood. The type of people that live in those houses are they type that will live in your rental. How does that make you feel?
4. Not getting up to date tax numbers, utility bills, possible prior rent numbers, rent numbers in surround area. Don't forget, you get to pay the utilities when its empty!
5. Not thinking about why people would want to live in that area - jobs, crime, distance from jobs, distance from amenities & attractions.
6. Forgetting you have to pay for the inspection, appraisal, asbestos test, lead test, etc. Add that into your purchase numbers.
7. Not understanding the basics of how to buy a house, not reading over your paperwork. Read it, even if you don't understand every single thing. I have an agent I work with, but I still find little things that could really cause some problems.
8. Thinking this is an easy get rich thing. Sometimes people score big on a property, but I believe it is rare.
9. Thinking you are safe because you have insurance. No understanding your insurance policy. America is sue happy, I always remember that!
10. Thinking everyone has your best interest in mind. My motto is trust, but verify!
11. Thinking you'll never have any major problems.
I've made some of these, and have learned by watching others make some. I've realized this isn't for the faint of heart! Lots of good info from everyone! Thanks for the shares!
1 Reply
Justin Peters
Realtor · Fort Worth, TX · Member since 2015 · 21 posts · 5 votes
10y
Jonno,
Glad to have you a part of the BP COMMUNITY!
Seeing that you're looking to buy and hold, I would have to say that having reserves is the most critical, especially when first starting out.
There are a plethora of horror stories from investors who jumped in too soon and then were underwater within just a few months due to unexpected occurrences.
In short, have reserves put away for anything that may come your way. If not, you could end up questioning the beauty of investing all together. Hope this helps.
Have a prosperous Merry Christmas and a Happy New Year,
Respectfully,
Justin Peters
Real Estate
1 Reply
Account Closed
Hermitage, TN · Member since 2015 · 38 posts · 5 votes
10y
Originally posted by @Max James:

Originally posted by @Account Closed:
Originally posted by @Account Closed:

Not having a sufficient cash reserve. And buying properties with less than 20% down.
Just curious, what is the drawback of putting less than 20% down, assuming you can still qualify for the loan?
I'm of the opinion there is absolutely nothing wrong with buying a super leveraged property as long as you bought it correctly. If you buy in the right area, project the right analysis, don't fudge your numbers and justify bad ones, you should be fine bringing as low as 3% down for a property.
I think the reason people say "low money down is a terrible idea" is because so many really extreme novice investors with zero clue about real estate fail when they bring less than 20% down. I believe these are the same people that would fail even if they brought 50% down. It's just much more noticeable when they bring 3% down to a bad deal because of this scenario:
A. dummy REI buys a negative cash flowing buy and hold rental property either because they had no clue how to run a buy and hold analysis or they thought it was OK to buy a negative cash flower due to the fact their exit strategy was going to be sell in 1-2 years. They noticed other homes EXACTLY like the one they bought increase by over 18% in value in one year, so they say, "heck, I'll buy this place even though I have to pay a measly $80/month towards the mortgage because the total gross rents don't fully cover it"
B. housing market crashes
C. dummy REI realizes that now after having a baby and buying a new car, they cannot afford to pay their primary residence mortgage along with another $80/month towards their rental properties mortgage. Not to mention that new furnace they had to buy since one of them went out in the property.
D. dummy REI feels they are better off selling the rental property at a huge loss because it's too much of a mental drain on them to own it.
E. smart REI buys at large discount
:)
Thanks, This is what I was looking for!
1 Reply
Jonno Rushbrook
OP
Real Estate Agent · Melbourne, FL · Member since 2015 · 23 posts · 18 votes
10y
Thanks everyone, the response was AMAZING and I read/appreciated every post.
Cheers heaps, will absolutely take it into consideration and very likely come back for more questions before I pull the trigger and purchase my first investment.

Cheers again, more than appreciate it!
0 Reply
Juan Carlos Quiroz Zolezzi
Lender · Upland, CA · Member since 2009 · 112 posts · 27 votes
10y
Not doing your own due diligence.
Believing everything the listing agent says. Or believing everything your "investor friendly" (who does not own any investment property) says.
0 Reply
Chase McEntee
Houston, TX · Member since 2015 · 10 posts · 0 votes
10y
Originally posted by @Jay Hinrichs:

@Steve Rozenberg
"The other thing I see for buy and hold investors is dramatically under estimating operating costs."
Thank you for posting! Could you expand a little more on operating cost?
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Chase McEntee sure I mean cost for turn overs... tenant damage not taken into consideration... time between tenants... cap ex under estimated...
that kind of thing...
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Chase McEntee
Houston, TX · Member since 2015 · 10 posts · 0 votes
10y
@Jay Hinrichs oh gotcha, thanks!
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Chase McEntee on rents between 800 and 1000 or so if you use 50% for operating cost then deduct mortgage... you should be in good shape
operating costs include
PM
maint
vacancy
taxs
ins.
reserves for capex
if you do better wonder ful.. but when folks run with 30% or so on a PM management property they are usually not happy ... rare that you can make a PM property run at 30% at least in the middle demographics and certainly anything HUD
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Chase McEntee
Houston, TX · Member since 2015 · 10 posts · 0 votes
10y
@Jay Hinrichs Great advice! making me feel better about my analysis!
P.S. fantastic discussion! Some very good advice in here!
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Chase McEntee and If your buy and hold in Texas you have to be that much more diligent as Texas property tax's have taken down the best of intended investors along with soil issues in many parts of the state.. you can pretty much count on foundation fix's during the life of your ownership that will wipe out one to 3 years of cash flow just with that event
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