The 6 Dumbest Mistakes You Can Make as a Buy and Hold Investor

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When I was in college, I decided to lead a prank against the girl’s dorm. Many of the girls had just finished watching The Texas Chainsaw Masacre and headed off to bed. So I gathered a few buddies and snuck into the dorm, tying all the doors shut to the door across the hall. Then, connecting the school’s speaker system to my iPod, we woke the women up to my own created music mix- comprised of chainsaws, screams, and creepy circus music.

It was hilarious…

The girls didn’t see the humor. Panic, terror, and anger gripped the girls dorm. Screaming, crying, praying, and other more “colorful” words soon grew louder than the music we blasted. So we did the respectable thing that any fine young men would do…

We ran and hid.

The chainsaw prank was probably the dumbest mistake I’d ever made. Not only did we almost get expelled, but I personally had to apologize to each and every girl in that dorm.

Oooph – it hurts just talking about it.

Anyways, the point I’m trying to make is that we all make dumb mistakes. It’s part of life. However, it doesn’t need to be your error to learn from a mistake. Just as I’m sure you will now never blast chainsaw circus music to a bunch of college girls because now you’ve learned how dumb the mistake is – hopefully this post will save you from other mistakes as well.

The following are the six dumbest mistakes, in no particular order, that you can make as a buy and hold investor.

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1.) Paying Too Much

There is a lot of emphasis around the real estate investing world on getting incredible deals for wholesalers and flippers – and rightly so. These kind of investors need to get amazing deals in order to make a quick profit. However, just because you plan to hold on to property for the long haul – doesn’t mean you can afford to pay too much. Yes – over time, that mortgage will be paid down to zero but that doesn’t give you an excuse to pay more than you should.

Having a mortgage that is too high means you will have a payment that is too high… and that’s obviously dangerous for your cash flow. As a buy and hold investor – spend time learning how to buy smart and get the best deal. Use the tricks and tactics of the wholesaler and flipper to get an even better deal for yourself, and create instant equity in your property.

Related: How to “Buy Smart” : Tips for Buying Only the Best Deals

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2.) Adjustable Rate Mortgages

An Adjustable Rate Mortgage (ARM) is a loan, but unlike a “fixed rate mortgage” – the interest rate can change with the economy, causing your payment to skyrocket. I understand the allure of an adjustable rate mortgage: low payments at the start. However, although you might lock in that rate for 3 or 5 years… there is no guarantee what the economy will be like in 3-5 years. For me – I want to have the most control over my destiny, and ARMs take a huge chunk of my control and put it into the hands of the US economy – a scary place to be sometimes.

If you want further proof of why an ARM is dangerous – just ask the tens of thousands of investors who lost properties after their payments began to skyrocket at the last market collapse. Take note: history repeats itself.

Related: The BiggerPockets Mortgage Center

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3.) Not Learning the Landlord Business

Yes – the landlord “business.” Landlording is a business, and like any business – the success of that business depends almost entirely on the owner’s ability to lead. Many treat landlording like a hobby, insisting on handshake agreements, loose rules, and emotional decisions.

However – that’s not you! By reading this article, you’ve already shown you are someone looking to improve your business by reading. Here on BiggerPockets, there are thousands of discussions, blog posts, and more to help you improve your landlording business. Take advantage of those resources and start strengthening your business skills today.

Related: How to Be A Landlord: Top Ten Tips for Success

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4.) Not Doing the Math

Look – no one “enjoys” doing math. No one ever woke up on a Saturday morning and said “The sun is shining, the birds are chirping… I think I’ll do some algebra.”

Well, sometimes I do. I wasn’t co-captain of my high school Math League for nothing- but that’s another story.

Many buy and hold investors simply buy property without doing all the math involved. Kevin Perk wrote a great article about this the other day called “Don’t Fall For the Hype: How to REALLY Discern a Good Deal.” In it, he demonstrates the fatal error many investors make by assuming that the amount of money that comes in, minus the mortgage payment, is going to be the monthly cash flow.


There are so many other considerations to take into account such as maintenance, vacancy, management, capex, and more. By correctly looking at ALL the numbers – you will be able to discern a good deal from a bad deal and avoid making a colossal error. Trust me: math saves.

As a side note – in the next couple weeks, we are going to be launching our new “Buy and Hold Calculator” – which is going to revolutionize the way buy and hold investors analyze investment properties! I’m super stoked for this!

Related: How to Buy a Small MultiFamily Property: A Step by Step Case Study

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5.) Not Buying with Property Management In Mind

“But Brandon… I’m going to manage myself, so I don’t need to plan for property management or maintenance. I’ll do it all myself.”

Yep – that’s what I told myself when I got started. I bought marginal deals because I knew that I could handle the problems when they came up, so I didn’t need to account for property management. And honestly – it worked out just fine for a few years; but then I began to grow. When I had just one or two, it was easy, but as I began to collect more and more units, I could no longer handle all the properties. I needed management… but I didn’t buy with management in mind, so I was stuck working every free minute on my rentals.

Not cool.

What I’ve learned is this: always plan for property management when buying. Perhaps you will do it yourself – great! You’ve just made even more money. However, none of us know where we will be in one year, five years, or ten years. So buy property and do your math with the assumption that someone else will be managing (figure at least 12%) and someone else will be doing the maintenance (another 10%.)

You know the cliche: plan for the worst, hope for the best.

Related: 7 Ways to Invest in Real Estate When You Are Too Frickin’ Busy

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6.) Quitting Your Job Too Early

Finally, many buy and hold investors (ehem… why are you looking at me?!) quit their job too quickly, without the proper foundation in place to whether potential storms. Yes, quitting your job and sailing the world on a yacht with Angelina Jolie is the goal… but until you can afford to truly step away from the security of a job – don’t be in such a rush. Angelina will still be there next year.

Jobs provide some excellent benefits – like the ability to pay your bills when the tenant doesn’t, as well as the ability to obtain mortgages – so enjoy the fact that you have a job and don’t quit before you are ready.

Related: How to Quit Your Job in Less Than Six Months Using Real Estate Investing


Look – we all make mistakes.

However, please don’t make these. Make dumb mistakes like growing a mullet or filling the girls dorm hall up with 8 inches of water (yep, did those too… I’ll tell that another time) but don’t make the mistakes in this post.

Buy and Hold Investing is about reducing risk while growing your wealth. Dumb mistakes can raise your risk, destroy your wealth, and cause more headaches than 16 hours of watching Roseanne Barr singing the national anthem.

It will only come back to haunt you later.

Thoughts? What dumb mistake am I missing? Leave your comments below!

(Bonus points to anyone who shares their dumbest mistake!)

Photo: JD Hancock,Donald, Gaetan Lee, JD Hancock, JD Hancock

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on Like… seriously… a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of “The Book on Investing in Real Estate with No (and Low) Money Down“, and “The Book on Rental Property Investing” which you should probably read if you want to do more deals.


  1. I think it is understood that location is prime importance for all business and so it is for real estate investments too. Not looking for future prospects of the location may be another dumb mistake.
    Generally talking to county for town plan or community planning will give some Idea.

  2. Two things:

    Illustrations are great. So funny!

    “assuming that the amount of money that comes in, minus the mortgage payment, is going to be the monthly cash flow” — Please tell me no one has done this! Just the idea makes me cringe!!

  3. Brandon, think of your prank in a positive way. You got to personally talk to every girl in the dorm!

    I use ARMs on all my long-term rentals, but I plan to pay them off before the 5 or 7 years is up. I do it for a few reasons. 1. My portfolio lender only does ARMs or 15 year fixed and the payment is so much lower on an ARM. 2. My cash flow is higher with an ARM and I snowball all my cash flow into paying off one mortgage at a time. The more cash flow I have the fast I can pay off mortgages. 3. I have to put at least 25% down with a higher interest rate to get a fixed rate loan because I have 9 mortgages. My portfolio lender lets me put 20% down and lets me do a cash out refi up to 75% of value.

    If you can do a 30 year fixed loan and cash is tight, that is probably the best route to go.

    • Brandon Turner

      Haha Mark, yep I made some friends (and enemies) that day.

      As for using ARMS – yes, I think the way you are doing it is great. I’m actually going to do one as well, but the cash flow is so great that I can pay it off in 5 years with the cash flow. However, for the vast majority of people who take out loans – especially newbies – they will never do this. They’ll simply break even on a crappy purchase, and then when rates rise (which they will) it’s gonna kill them financially. I see the future…. 🙂

      Thanks for the comment!

  4. Brandon:

    Like Mark, all our mortgages are variable rate – at 1.4 – 1.6% less than the equivalent 5-year fixed term. We do out cash-flow analysis and set our payments based on the maximum (we use a capped product) interest we could incur during the mortgage term … the result? A property we purchased last October whose mortgage was amortized over 25-years, now has an effective amortization of 16-years, 9-months.

    • Roy, I forgot to mention one more thing. With the lower interest rate of an ARM, it would be cheaper to have the ARM over a fixed rate loan for much longer than the actual ARM term. It takes a while to make up for the 1% lower interested rate at 5 or 7 years. Is that what you are saying in more technical terms?

      • Mark:


        There was a statistical analysis of Canadian mortgage rates (fixed vs. variable) from the 1950s through to the mid- to late- 1990s which demonstrated if you took any 20yr or 25 yr period (the most common amortizations for Canadian home owners) in that range that a variable rate mortgage always came out ahead of a fixed rate … that even includes the nasty period in the early 1980s when interest rates hit 17-19%.

        After having our variable rate mortgage for 3 yrs, the interest rate would have to increase by almost 2% for the remaining 2 yrs to put us at the same amount of interest paid as a 5-yr fixed term mortgage.
        Furthermore, the variable rate mortgage product we are using allows us to convert to a fixed-rate mortgage (of equal or longer duration than the balance of our mortgage term) at 0.5% below the posted rate. So if the bottom fell out of Western societies and it looked like rates were going to climb dramatically, we could limit out exposure.

    • Brandon Turner

      Hey Roy, yah – a capped variable rate might not be so bad. And if a person has the discipline to pay off that loan before the term ends -great. However, 99% of people will never do that, which is why I list it as a “dumb mistake.” I’m working on a deal right now that will be a 5 year ARM- but I’m going to set the payments on it to pay off in 5 years, so I won’t need to worry.

      Thanks for the comment!

  5. Sharon Vornholt

    Somehow Brandon, you have us all thinking that you are a laid back guy that would never do something like that prank you pulled. I wonder where we ever got that idea??? Your momma probably thought that too.

    You really nailed it with the landlord mistakes. I’ll be if folks were to “fess up”, they would have to admit they have been guilty of one if not all of these mistakes particularly when they were brand new. Looking back to my first couple of properties.. well let’s just say I didn’t really have a clue what I was doing ( I thought I did) and I made a lot of mistakes. Luckily like you, I survived. It would be so much easier to know these things in advance. God bless BiggerPockets.


  6. I have gotten into commercial mortgages for my properties. I have low fees all across the board and can get the funds quickly. These loans are typically ammortized over 15 years and have a balloon after 5 years. Since I switched to financing all my properties at 15 year ammortization at most, it was an easy transition to commercial mortgages. I don’t plan on having the properties paid off by the balloon date but will have plently of equity to refinance with easy or worst case I could focus capital on paying that note off in full but that is a backup plan I don’t see I would have to use.

    Also as for investors lossing their shirts on ARMs, they really shouldn’t have. The market and interest rates peaked in late 2006 -early 2008 and with what many aRMs were tied to the payment would not rise with falling rates. I might be weird one in all this as well, in that I do not see a dramatic rise in interest rates (granted congress doesn’t impose a self inflicted disaster toethe economy) on the horizon.

    • Brandon Turner

      Hey Kyle, yeah I’m definitely being forced to move that way but I’m trying to decide how risky I want to be. As I mentioned, I’m definitely nervous about not being in complete control of my financial destiny and would hate to see something bad happen where I couldn’t refi! I’m getting more and more focused on security in my old age!

  7. Brandon I am in the same boat as Mark Ferguson. All of my loans are 15 year with a 5 year ARM. I have actually never been had a 30 year fixed loan on a rental. My original philosophy in investing was that if it would not pay for itself on a 15 year amortization, it was not a good deal. I never actually saw the possibility of putting money in my pocket every month from real estate, as my plan was retirement, if one property was flowing cash very well it allowed us to buy a house that wasn’t as strong as we would like. Adding properties was the goal.
    My worst mistake in Real estate was probably buying property that would at best break even or lose only 50$ a month if nothing went wrong. In order to buy properties with no money to put down, I would have the owner carry a 2nd mortgage for 20% of the purchase price at 2% interest,with a 5 year balloon, and pay the first mortgage on a 15 year 5/ARM. After 5 years approximately 20% of the property value would be paid down and I could refinance and be back at exactly the same mortgage payment as before. The drawback is that those properties barely pay mortgage, taxes, insurance, and any need to do a major rehab came out of my pockets. So far I have been able to set aside money from my day job and pay off the second mortgage before the end of 5 years so I have not had to refinance and the properties will be paid off in a total of 15 years. I actually lose about $100 per month on 1 property, but I consider it my down payment by monthly payments. Not smart but no cash down payment required this way. I also paid full asking price for each house to do this.

    • Brandon Turner

      Hey Jerry, I agree definitely. A 30 year is okay, but 15 is waaay better, and I also try now to only find properties that cash flow well with a 15 year. I’m closing on a triplex in a few weeks that should cash flow like crazy with a 15 year, enough so that just the cash flow alone being put back into the property should pay it off in 6 years, hopefully! Thanks for the comment!

  8. Brandon, Some great points in this post especially in doing the number crunching. BTW, your not alone, my better half does math Saturday mornings too!
    You failed mention to make sure you have the property professionally inspected prior closing too! Nothing worse then closing on a potential cash flow cow then to have to replace the mechanicals shortly after closing! Experience has taught me to walk from potential deals when the inspection contingency became an issue with the seller on a rental property.

  9. Do you just have a harddrive full of storm trooper pictures that you can apply to any blog? I can just imagine you finding a random picture and saying “how can I make a real estate blog out of this naked storm trooper holding a sign?” Or does your wife look at your browser history and find searches for “naked storm trooper”? :O)

    Great post. I especially like #6. Not only is it much easier to find financing, but it also helps me define systems and create a business. Additionally, we did not pay too much for our first buy and holds, but we did spend too much upfront on the renovations because we did not have an accurate ARV. We bought cheap for cash, renovated and did a refi with the bank. Because we thought the ARV was higher than it was, we were not able to refi enough to cover the renovations Having the W2 job means these situations did not hurt us as bad as they could have.

  10. A few things about your post:
    [1] The storm trooper photos are awesome.
    [2] I find the prank story unamusing (my husband couldn’t stop laughing until I gave him “the eye”).
    [3] Great list! I found that too many people don’t think of #6 mostly because they don’t do #4. Conservative sensitivity scenarios and adequate reserves are a huge deal. Unfortunately too many people don’t account for these things.

  11. Brandon,

    As an unrepentant Star Wars nerd, I love the stormtroopers.

    As an owner of 20 rental units, I very much like your advice. Rule #1 “Paying Too Much” is the mistake I have been most likely to make.

    Another key piece I have determined after 11+ years in the income property business is simply this: you can make some of the above mistakes yet still make out rather well!

    That is because real estate is such a forgiving asset class – investors are paid so many ways. This can be even more true when one is leveraged, then the strength of a carefully chosen geographic market and the inexorable force of inflation “saves” an investor.

    Good stuff, Brandon. All the best!

  12. I have definitely overpaid for a few properties but I do believe the price is only one piece of the puzzle. I believe it’s better to get a good deal on a great property than a great deal on a good property-when talking long term. I do think terms are the most important item to consider in your purchase like everyone has talked so much about. I really, really, really, really, did I say really? am at fault at #3. I have made all the expensive, time consuming mistakes and am just now in the last year or two (been at it 7 years), getting my systems down. Just like any business, systems and management is everything! Thanks for the great post Brandon.

  13. La Nae Duchesneau on

    If I had to add a lesson to your list I would ad listen to your instinct. I saw a mobile that had a great pricetag, but it needed a lot of work. My handyman didn’t think it would take that much work and would be a good buy. I just had this gut feeling to not do it. I dragged my feet for a few days and then said what the heck. How bad can it be. I will still make money if I put an extra $1000 in repairs. So I bought it.
    It was a money pit. It needed new electric, new plumbing, the hot water heater was missing entirely…. I would go back and change this decision if I could. Now don’t get me wrong, I will make money in the end. However, I could have bought 2 units for what it is costing me to fix up this one unit.
    And that sad part is….. I had a feeling of DON’T DO IT. And I ignored my intuition and it is biting me in the arse. I won’t make this mistake again.

  14. I am kind of a REI newbie, so this might be a dumb question but…
    What is the difference between landlording and property management?

    I thought you either landlord, or you have a property manager that takes care of your property. But this article makes it sound like you need to both landlord and pay for property management services. Assuming that you want to spend less time managing your properties and more time looking for deals, wouldn’t you just hire a property manager and they would take care of landlording?

    Thanks ahead of time for any answers to this.

    • Brandon Turner

      Hey Chris, thanks for the question. So, landlording is when you do it yourself, property management is when you hire someone else. But technically, a property management is doing landlording, and a landlord is doing property management – so I can easily see where there is confusion! But typically in conversations with investors, Property Management is a formal business doing it.

      Also – no, you definitely don’t need both. However, it’s wise to budget to have a property manager look after things, because if you don;t plan for it, and something happens where you can’t (new job, no time, injury) you still can afford for someone else to do it.

      • So when you first start and only have one or two properties you should landlord yourself. But as your investments grow and you obtain more properties you should look into getting a property manager?
        So along with this, is it a bad idea to buy property not near you that you couldn’t reasonably landlord?

        • Brandon Turner

          Yeah, it’s all up to personal choice but that’s how I do it. Nothing wrong with investing at a distance, as long as you understand the neighborhoods as good as possible and get a killer deal, enough to cover problems.

  15. Thanks for another well written article. Even though these are basic things to remember, they’re fundamental to the core. I will definitely keep these things in mind when I begin to buy and hold. On another note, I appreciate that podcast you referred me to about “Note Investing” by Dave Van Horn. I was able to reach out to him and I will soon network with him when the time comes.

  16. Help me understand why an investor would choose a 15-year fixed amortizing loan rather than a 30-year. The 15-year’s interest rate savings are dwarfed by the 30-year mortgage’s greater cash flow. Lose the cash flow, lose the opportunity cost to invest in more property.

    Why would one want to use a 15-year loan to effectively accelerate pay down principal in a low interest rate environment like this?

    Additionally, financial leverage on a property is often a greater wealth-building force for a real estate investor than any other.

    Faster principal paydown = reduced leverage ratio.

    When the debt is gone, so is the leverage When the leverage is gone, the Total Rate Of Return to an investor is greatly diminished.

    I use interest-only loans wherever possible. I would rather have a 100-year fixed amortizing loan rather than a 30-year. But 30 years is typicallly the longest duration product offered. When equity builds in a property, it is often time to do a cash-out refinance.

    You have surely all learned about the “velocity of money”. It is best to keep money moving and working for you.

    • Why 15 vs 30?
      Difference of business model/risk tolerance.
      Mortgage-free means less risk if there is a vacancy. Sure, there is a loss of income, but it’s a lot less panic then if a tenant gives notice and there is a $800 mortgage payment due every month…..
      In broad generalities, the mortgage-to-the-hilt folks were the ones who made the most $$$ during the boom market, but they were also most often the ones that lost everything when the market went bust.
      While the “low/no mortgage” crowd lost lots of “value”, it was a paper loss. Rental income didn’t decrease just because the house was “worth” less. Unless something else was going on there was actually no reason for it a mortgage-free property to be affected in the slightest.

      • But a 15 year loan will have higher payments than a 30 reducing cash flow. Lower cash flow means more risk if things go bad. If you have a 30 year with plenty of cash flow you will be able to survive a downturn just like a cash buyer. But you can still the flexibility to pay off the loan early or invest that cash flow Into something else or build an emergency fund. The 15 year gives you no flexibility.

  17. Brandon,

    I’m new to BP but you seem to always offer practical advice. You & BP make it easier for new investors to understand the RE business and how to increase our chances of being successful. This was a good article & the Star Wars pics were a nice addition.


  18. Tyrone Maxwell

    So many wholesalers (wannabe’s) overprice properties and say its a buy and hold investment. Well the house two doors down sold for less to a owner occupant why should I pay more for this? Its crazy because the greed they have end up with no results.

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