We all make misguided choices, often with the best of intentions. And we shouldn’t jump into every opportunity expecting to just make a bunch of mistakes. Not only is that going to keep us from taking advantage of good opportunities because we think we’ll fail, but it’s exhausting financially, physically, and emotionally when our mistakes outweigh our victories.
We should be educated on the work we intend to perform, guided to prevent unnecessary loss, and mentored to make as much profit as possible until we become masters at our craft.
Even though errors are inevitable and not entirely unavoidable, we can minimize our risk by learning from those who have made big blunders already. Learning from other’s mistakes could help you to do the right thing the first time and make more money.
If you want to avoid losing money by making mistakes that are easily avoidable, then let’s jump into a few mistakes to avoid in your real estate investing business.
#1 – Giving Too Much Money to Your Contractor Upfront
What happens with many contractors is they take the money you paid them for your project, scramble to finish the other project they’re working on with YOUR money with the plan of using their paycheck from that job to pay for yours. Then, if they miscalculate their efforts at the job they’re finishing up (on your dime), they could be there for another month. Or, if they don’t get paid enough or on time for the previous job, then they don’t have the finances to start yours.
Your contractor, as it typically happens, could end up behind schedule and asking you for more money when they haven’t done anything to begin with!
When you receive funding for the rehab costs of your investment property and follow the draw system under which most lenders operate, it can sometimes feel like an unnecessary hassle to prove that work is being done incrementally in order to get the next draw and keep the project moving. But this due diligence process has been put in place to protect you from being ripped off and losing money.
Don’t get “ahead of the money” by forking over so much that you’re at risk of loss because your finances are now in someone else’s hands.
#2 – Not Making an Offer
You can’t close a house with words. More than anything else, real estate is a business that is done with black ink on white paper.
When you pass someone a written offer (or anything else in writing, for that matter), you are handing them your intentions. They can then take that information home, digest the dates and numbers on the page, live with it and understand what those numbers will mean in their lives and in their situation, and it becomes real to them. Your offer creates a vacuum in their life, especially if the seller has no other offers on the table at the moment, and they often feel like they have no choice but to accept it (or, at least counter).
Whenever possible, you should hand deliver a physical piece of paper to the seller with your offer. Email has its place and is convenient and often necessary in our fast-paced world. But a piece of paper will take up real estate on that person’s desk (or counter or kitchen table or the dash of their car), making it less unavoidable than an email.
#3 – Not Getting Non-Refundable Deposits
If you’re assembling a wholesale deal and you’ve found a buyer for the property that is willing to pay more for the property than you have it under contract for, and you don’t require a non-refundable deposit, you run the risk of the buyer not closing and your deal stalling out. This is especially true if you’re still under contract with the seller of that property to you while you “assign” a buyer (the end buyer in your wholesale deal). That original seller has you under contract and therefore under the pressure of a stopwatch, and if you have a buyer who walks away from the deal, you could be out, too.
Control your buyer with a non-refundable deposit to lock them in, because most people don’t want to walk away from $1,000 (or however much you require). Then, if there is a problem and the deal falls apart, you have the deposit to cover the time you’ve spent on that buyer who fell through and can still sell the property to someone else if time allows.
When you have cash buyers, you should focus on your “posture” within the conversation and require specific things to keep them true to their word. When you’re new to investing, it can be so easy to become compliant with what others ask for (or demand) because you feel like they probably know better than you. But if the interested party is truly a cash buyer and not a tire kicker, they should have no problem giving you earnest money for the deal.
#4 – Being Scared to Talk to People
There are ways to work around your natural timidity, but you should make a conscious effort to get out of your self-limiting shyness.
Tell me if this sounds familiar: You break out of your comfort zone to attend a REI meeting in your area to connect with other real estate investors and professionals, only to be so intimidated by the caliber of education in the room and the confident people in suits who seem to have it all together that you barely talk and you don’t make any connections.
First of all, great job for showing up! Keep doing that and you’ll slowly break out of your shell.
Second, get uncomfortable and introduce yourself. Just because you aren’t the smartest person in the room–and that’s a good thing, because if you are, you’re in the wrong room!–you can still make connections that could lead you toward a successful deal. I’ve personally connected with someone at my first REI meeting who knew a cash buyer for a property I had under contract.
And as a bonus, if you keep attending, you will meet people who are beginning just like you. You could build a strong relationship with someone that could turn into a potential partnership, you could meet an accountability partner, or you could help someone else avoid a mistake that could cost them time and money. And that’s all worth it in my book.
Open mouth, open business.