11 Mistakes Real Estate Investors Make

Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...

From Dennis Fassett, Cash Flow Mercenary...

I read a great piece in Forbes the other day about this… they convened their real estate council and asked each of the members about the biggest mistakes that investors make.

They came up with 11 mistakes. There weren’t any surprises in the list for me, but I thought I’d pass along their list so you can compare it with what you’re doing in your own business.

#1: Understand Your Investment Personality

This is really about understanding your own tolerance for risk.

Are you a high-risk, high-reward person who’s not afraid to lose from time to time?

Or do you prefer safety and security?

Figuring that out, and sticking to your type will help you sleep better at night.

#2: Hire a Professional Home Inspector

I like this one a lot, and it’s something I do every single time I buy a rental property.

In my view, the key is to find an inspector who owns or is familiar with investment properties versus the deal-killing guys who retail buyers use.

The deal-killing types are going to complain about the miter angles on the crown molding, while the investment-property types are going to take a hard look at the mechanicals and structure and tell you exactly what kind of asset you’re buying.

#3: Don't Always Listen to Building Inspectors

This can be dangerous, but it can pay dividends.

Some of my rental-owner colleagues have started challenging rental inspection results because in some areas they’re being overly aggressive with rental properties.

Several of them have won and had the building departments back down.

#4: Trust, But Verify

None of us really needs to be told this, do we?

Like we’re really going to take an agent’s word on the quality or rentability of a particular property?

Not likely.

#5: Don't Be in a Rush

They quoted the old saying: “Bulls make money, bears make money, pigs get slaughtered."

I know time is money in REI, but oftentimes making no decision is a whole lot better and less costly, than making a bad one.

#6: Keep Your Cash and Make Huge Profits

This is the whole good debt/bad debt concept. They advise that it’s best to pay cash for everything except rental houses.

So instead of starting with 1 free-and-clear house, spread your funding over several houses and let the renters pay down the mortgages.

#7: Make Yourself Scalable

They echo what I wrote last week on scaling…

First, learn the business. Then when you know how it’s supposed to operate, consider scaling if you have other profitable opportunities to pursue.

#8: Stick To Your Criteria

Another one of my favorites...

I’ve had strict criteria for buying rentals now for 10 years.

Before that I didn’t, and because of that I have a couple of properties that I’d rather not own and can’t sell.

#9: Make Sure You Hire the Right Contractors

How about the right good contractors?

You can’t go on Facebook these days without seeing a post from someone who had to pay for a ton of rework from using a shoddy contractor or simply got ripped off by one.

#10: Hold On for the Turnaround

This one I’m not sure I agree with.

Do you cut bait on a losing investment, take the loss and move on to something else…

Or try to hold on until the next upcycle in the market?

#11: Stop Overthinking

This one is huge and it’s a big problem for new folks. They seem to want every available piece of information in hand before they pull the trigger.

The issue is – that will never happen.

I remember back in 2008 when I was looking to buy my first apartment building. I paid for a couple of expensive and worthwhile educational programs and studied up for 3 months. Then I started making offers and had one under contract less than 90 days later.

I met a couple with the same goal in one of the programs. I’ve now bought and sold 2 buildings, and to this day, they’re still “learning” because they don’t think they know enough to pull the trigger.