To the new real estate investor going out and making your first deal can be a very scary event. Although making mistakes are just part of the game, none of us wants to make a mistake that costs us lots of our hard earned money. However, learning from other real estate investor’s mistakes can help you go a long way in your real estate investing career. So here are 7 deadly real estate investing mistakes to avoid.
Never buy a negative cash flow property. I know this sounds like a no-brainer, but there are those out there “helping” new investors get into properties with such incentives as no money down, seller pays down payment, seller pays for first 8 months negative rent, and seller pays closing costs, etc. Don’t fall for it! Never buy a negative cash flow property no matter what the so-called benefits.
Never use your own Home Equity Line of Credit to purchase real estate. You are putting your own house at risk. Always get a hard money or private money loan for fix and flips and a regular loan for cash flow properties. You can start with a hard money loan to initially buy and fix the property and then getting a regular fixed rate loan using the equity of the property as your down payment. There are other methods, but this is just one example.
Never buy the first deal you find. The first deal is very, very rarely a great deal. Sometimes you might find something that looks great on the first look, but do your due diligence to make sure of any potential issues. Remember, there will always be other deals out there.
Never go it alone. Instead, always find a mentor, or other experienced real estate investor to help you with your deals. This takes some of the “am I doing the right thing” questions out of your mind, because you are having someone else, who has experience helping you with the analysis and will bring up questions to prevent major issues.
Don’t assume the property will be structurally sound and it only needs cosmetic repairs. Instead always hire a home inspector. This is a normal part of the due diligence process of purchasing a property. The home inspector can find problems no one else knows about. Ronald Reagan said it best “Trust but verify”. Make sure you get the full report and question anything that you don’t like.
Never trust your realtor or other anyone else to do your due diligence. Have I mentioned due diligence before? You need to get your home inspection, you need to find a mortgage broker or bank to help you with the financing, you need to make sure the value of the property is well below market value, or that it will cash flow. You can’t blame other people if you don’t do these things. Again, your mentor can help you with this process as well.