How can I avoid the mistakes that YOU made??

37 Replies

Hi everyone, I'm going to try to make this short and sweet!

I'm moving back to Chicago in 6 days and I'm ready to jump into Real Estate (finally!) I have not done any deals/taken any action yet in Real Estate because I knew this move was coming. 

What I have done is read, studied and listened. I've listened to any/every Real Estate Investing podcast there is and experienced investors always talk about all of the mistakes that they made. How can I avoid those? I know I will make mistakes, but I want to make as many correct moves as possible. 

Successful investors- If you had to start over, what would you do different? What would you do the same? What was a waste of time and what was the best move that you made? Did you start out solo or have a partner? 

Just so you know what my plan is to better frame your answer- I'm going to go for my real estate license right away to learn more in depth about purchasing/selling properties- I learn best in a classroom/organized setting so I think this will be best. 

I want to purchase a small multi-family unit in/around the Southwest Suburbs within 4 months of the move. I'm working on a personal loan with a family member and will do a FHA or 203K loan. We will most likely do a 203K to have room for repairs.

I want to get into a situation where I'm living rent free as quick as possible so I can save for my wedding and purchase more property! The end goal is to be a full time investor within 18-24 months of next Monday! (right now I work full time in travel) 

Any advice/thoughts will be incredibly helpful! (especially from investors in the same area) 

Thanks for the time

Megan 

Megan,


When I first got started more than 10 years ago I asked the same question, but didn't get answers from experienced people.  I got a lot of opinions, but no one willing to be vulnerable.  So, here's some of the things I would recommend:

Don't worry about LLC/Corps until you have enough equity that your insurance isn't sufficient.

Cash flow is King.  My first investment property was negative on the cash flow.  But, because I had a six figure job, I wasn't worried about it.  Then the Recession came and I lost the house.  It's hard to lose a house with solid positive cash flow (50-65% of gross).  It doesn't take much of a hiccup to lose a house with negative cash flow.

Repairs will almost always be more than you expected.  My partner always says, "I hope to buy a house someday where the repairs will be less than what I expected."

Don't be in a rush.  Be patient and make sure it's a deal.  It's better to not buy a house than to buy a bad one.  There's a lot of hype and gurus going around that make the business seem like a no brainer.  It's not.  You have to kiss a lot of frogs to find a prince.

Master a neighborhood and stick with it. You will do better sticking to a neighborhood that is close than one that is far away.

Deals are found when someone makes a mistake.  Either the agent, the seller, or the buyer.  An agent or seller can not know their market and misprice a home.  


HTH,

Robert

Originally posted by @Megan Roche :

Hi everyone, I'm going to try to make this short and sweet!

I'm moving back to Chicago in 6 days and I'm ready to jump into Real Estate (finally!) I have not done any deals/taken any action yet in Real Estate because I knew this move was coming. 

What I have done is read, studied and listened. I've listened to any/every Real Estate Investing podcast there is and experienced investors always talk about all of the mistakes that they made. How can I avoid those? I know I will make mistakes, but I want to make as many correct moves as possible. 

Successful investors- If you had to start over, what would you do different? What would you do the same? What was a waste of time and what was the best move that you made? Did you start out solo or have a partner? 

Just so you know what my plan is to better frame your answer- I'm going to go for my real estate license right away to learn more in depth about purchasing/selling properties- I learn best in a classroom/organized setting so I think this will be best. 

I want to purchase a small multi-family unit in/around the Southwest Suburbs within 4 months of the move. I'm working on a personal loan with a family member and will do a FHA or 203K loan. We will most likely do a 203K to have room for repairs.

I want to get into a situation where I'm living rent free as quick as possible so I can save for my wedding and purchase more property! The end goal is to be a full time investor within 18-24 months of next Monday! (right now I work full time in travel) 

Any advice/thoughts will be incredibly helpful! (especially from investors in the same area) 

Thanks for the time

Megan 

 Welcome (back) to Chicago!  I think learning as much as you can through books, podcasts, etc. is a great way to start.  But avoid paralysis by analysis, though it seems like you're eager and ready to go.  

Things I would've done different...I would've closed on the house that I had under contract for 350K that was later torn down by a developer and replaced with a house that sold for 1.1 million.  In hindsight, I think the land alone was worth more than 350K but my wife and I got skittish when we did the home inspection and discovered the house needed 30-40K of work.  That one is kind of specific, but I guess the moral of it is to look at the big picture.  Just because the house needed work, didn't mean it was necessarily not a good deal. 

I would've hired a property manager from the get-go.  Ask yourself how strong you are at confrontation/demanding money, and if its something you find makes you uneasy and you try to avoid, hire a property manager.  Its much nicer getting the rent direct deposited each month than having to deal with the sob story of why they can't pay.  

Those are the two that jump out at me.  

In terms of advice, I would spend a lot of time looking at the neighborhoods you're interested in on redfin(or some other form of the MLS). Look at whats on the market and look at whats sold. Look at the rents if they're available. Really know your areas of interest and be able to accurately have a pretty good idea of what a property is worth, what its units would rent for, etc. Also look at rental comps, whats a 1 or 2 bedroom going for in your neighborhood? Check out sites like rentometer.com(even consider a subscription). Best of luck with your move and search.

I think you just need to make mistakes so you learn. 

I would say don't be a chicken and just do it. I see too many people never start because they want the prefect deal and guess what those don't exist where everyone is going to land one. Only a handful will ever get that great deal and they can spot it because they made those errors.

IF you don't want to make mistakes go get a mentor but that's going to cost you $$$$. 

I just purchased a condo to live in for me and my fiancée recently. It is currently being rehabbed. I don't really regret my decisions on purchasing this place because my fiancée wanted it and we still go it way below market value (even after renovations). However, if I could go back, I would have done a few things differently -

1) I would have chosen a condo with lower HOA fees. The area I will be living in is called Edgewater and I happen to live on a block/street with a bunch of high rise condos where HOA fees are highest (600-800 a month). The location is great in that it is right off of the lake and the balcony opens up to the lake and there are other positives.

However, from an investing standpoint, it may not have been the smartest move. Therefore, to help offset the cost of mortgage and fees, my fiancée and I are considering renting out the second room to house hack. But, if I could go back, I would choose a condo with HOA fees between less than 300 bucks or use a FHA 203k loan to house hack a multifamily unit.

2) I would have contacted the HOA earlier and asked about what was allowed on rehab. Our HOA has many restrictions on what you're allowed to do for rehab.

For example, we weren't allowed to put stationary appliances in front of the baseboard heaters just in case they needed to do repairs on them... which meant that in certain areas of the kitchen, we weren't allow to put appliances there. So, in our situation, we actually had to put wheels on our oven and other floor cabinets so this would not be an issue.

So, if I could go back, I would research HOA rules and regulations thoroughly.

3) I would've negotiated the price of the condo more if I had known that the HOA fees were high since at that time I did not know exactly what was considered high. In retrospect, I think the sellers were extremely motivated and there weren't any offers previously (although they said there were) because of the high HOA fees.

4) I would've had all of the rehab materials and orders in place in order for a smooth and efficient rehab process. I used my dad as a contractor and my fiancée designed the place herself. And since it was going to be our first place together, she wanted it to be perfect! So, the rehab took longer than expected because she did an enormous amount of research. I'm okay with this since it's our own place. But, for future investments, we will have everything ready to go!

Anyways, lesson learned.

Originally posted by @Megan Roche :

Hi everyone, I'm going to try to make this short and sweet!

Successful investors- If you had to start over, what would you do different? 

  • I would not purchase turn key properties priced @ the top of the market value leaving little to no room for equity during negative market adjustments

What would you do the same? 

  • I'd find a group & play Cash Flow Quadrant.  

What was a waste of time and what was the best move that you made? 

  • Best move was to diversify our assets & where we invested.
Originally posted by @Federico Gutierrez :

I think you just need to make mistakes so you learn. 

I would say don't be a chicken and just do it. I see too many people never start because they want the prefect deal and guess what those don't exist where everyone is going to land one. Only a handful will ever get that great deal and they can spot it because they made those errors.

IF you don't want to make mistakes go get a mentor but that's going to cost you $$$$. 

The cost of mistakes often FAR outweighs the cost of getting educated first. 

@Megan Roche ,

The biggest mistake most folks make is getting into REI without an education, or taking a 3-day boot camp and thinking that will let them start a new career in REI. You don't learn a new profession in 3-days.

Take the time to get educated first, especially here in Chicago and especially in C(r)ook County.

The money you save in prevented losses will pay for your education many times over.

@Megan Roche ,

First off, congrats on making the decision to start investing! That's very exciting!

The answer I'm going to give may not be (exactly) what you're hoping for, but it will be the truth!

Ready for it??

Here it is:

JUST DO IT. Go for it! Do your best to locate that right first-opportunity for yourself, and once you're comfortable, dive right into it! There's no textbook that can possibly outline all the potential snags you're going to encounter. The best teacher in RE investing is your past failures. That's the truth!

Other than the obvious troubles most newbie investors have (finding a house, finding a reliable contractor that you can trust, especially one that won't take advantage of you, understanding to price the home right on re-sell, etc.), you're going to learn everything you need to learn, or at least 90% of it on your first 10 deals. You're going to win some, you're going to lose some, but you're going to LEARN A LOT.

You definitely don't need to drop $30,000 on a weekend seminar to learn how to do this. Simply, find the right opportunity (start small) and build up from there.

Good luck!

Feel free to contact me if you have other questions! I'd be happy to help you out. I'm in Chicago too by the way.

Thanks,

Van

@Megan Roche

Hello,

I I am the next city over in Hawthorne.  It sounds like you are very excited to begin your real estate investing, that's great!

I took a similar approach thinking if I just read everything I can get my hands on I will be successful.  This is a good approach, but the reality is that you need to take action. 

Imagine if you were focusing on baseball and you knew every thing you could know about baseball. Now picture yourself walking out to bat in a major league game clearly the education is great, but would do little for you in terms of the actual game.

So that being said take action.  You will learn more in your first deal than 10,000 pod casts.  Mistakes will happen and you figure out how to correct them or not to do them again.

Good luck,

Start taking action!

Hi @Megan Roche ,

I'm looking to buy my first investment property and I am going to take my real estate license exam tonight.

I recommend getting a license. I will also say that there are better ways to spend ~60 hours of your time than on a license, such as spending those 60 hours figuring out how to find good deals or networking. It is nice to have the structure of a course, however it also covered a lot of information that is useless for investors. So the 60 hour investment is up to you. It wasn't necessarily in-depth by my standards--that's where signing up with a broker may come in handy.

I know I didn't answer your question....partially since I can't.....but what I will say is that you seem driven, and you also seem careful not to make mistakes. This post itself seems to display your willingness to ask questions and make well-informed decisions. I'm lead to believe that you'll take that same mentality into real estate, and will be a very thoughtful investor, even if you do miss a few things along the way.

Well, haha since you asked...

For one thing, I wouldn't go to Chicago. Property taxes are crazy and rising. Income tax are crazy and rising. The population is declining because people see the writing on the wall...Why not go someplace that's growing and buy there?

Money can be made anywhere any time. But, Chicago is not particularly at the top of the list of places to start. 

@David Dachtera - thanks, I completely agree. I've debated a lot about actually getting my real estate license because I don't plan on selling houses, at least not right away. BUT I think the education that I will get from it will be incredibly useful for any/all future real estate moves I make! 

Here are a few tips:

  • You make money when you buy, not when you sell, so buy low. 
  • Don't over leverage so if things go wrong, you can weather the storm. ( It's easy to hold onto an asset if you are cash flowing. )
  • Things generally will cost more than you think, so create a buffer for margin of error. 
  • If you aren't okay with worst case scenario, you probably shouldn't get involved.
  • I try to never buy houses without inspection reports ( unless if the deal was so good I could buy it blind )
  • Have more than one exit strategy on a deal. 
  • Never stop educating yourself and ensure to talk to people smarter than you when questions come up. ( Title Officers, Escrow, Insurance, Lenders, Agents, Etc. )

@Megan Roche , I agree with Ben Leybovich on this one. Chicago's taxes are outrageous, and Illinois in general is going downhill fast. There are always pockets...

What area specifically are you investing in? My sister just sold in Tinley Park and after living in the house for 10 years, still sold it at a loss. Choose your location wisely.

@Megan Roche ,

There is other education to be had than just pre-licensing classes. Those will prepare you to be a broker (fka "agent", in IL) or a managing broker (fka "broker", in IL), but won't teach much about investing. PM me - let's connect.

Originally posted by @Ben Leybovich :

Well, haha since you asked...

For one thing, I wouldn't go to Chicago. Property taxes are crazy and rising. Income tax are crazy and rising. The population is declining because people see the writing on the wall...Why not go someplace that's growing and buy there?

Money can be made anywhere any time. But, Chicago is not particularly at the top of the list of places to start. 

I'm going to defend Chicagoland again...at least until I move to TX, TN or something. :)

The market as a whole here is great. I know so many people including people from out of state that do very well in every type of investing I am around. Flips, rentals, turnkey and wholesaling. Rents are very strong, demand for inventory is still high, and gurus are in town all. the. time.

Some of the stats like IL loses a person every 4.6 minutes etc while true can be a bit misleading. 2015-2016 saw the state lose 37k people, more than any other state. However that is only about .3% of it's 12,800,000 of it's population. In 2009 the population of IL was also 12.8 million, so basically flat since the recession. However, I admit I checked states that have real estate license reciprocity during this recent budget fiasco!

Of course location matters, but the market here for the types of investing I'm involved with is doing great. 

@Mindy Jensen thanks for chipping in! I'm actually going to the town next to Tinley Park. I know that Chicago and the midwest in general have had a difficult time recouping since the recession, but I know there is still opportunity there! Thanks for the heads up

Hi @Megan Roche . Which town? I used to live down there, too. Graduated from Lockport High School and spent a few years in the Crete area, too.

All I'm sayin', guys, is that having come from the Midwest I left behind a lot of friends in Chicago. The telephone conversations are always the same, and nothing good...

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you