10 Mistakes Real Estate Investors Make

10 nightmare mistake that I made in my 30 plus year in real estate. Number one, buying in the wrong location. I realized now after all these years doing real estate, that there is a location for actually buy and fix and flip. There's a location where you can buy, fix and hold doing the burr model. And there's a location where you just wholesale. Now, not every location you can actually fix and burr, but there's location where you can fix and flip or just wholesale. So I realized that I calculate area now in the B, A, B, and C. A is area where it's very, very high end. The problem was it's good for flip, but it's not good for rental because you can't get enough rent to cover the mortgage. Then there's area where I say it's the C area where the location is actually very low. The property doesn't appreciate as well. And it doesn't get a lot of good rent. And you get a tenant where I say they're high maintenance. And then there's the B area where it's in the middle between the A and the B and the C where these are area where you can actually fix and flip wholesale and do the burr. Number two, not understanding the real estate market. When I started real estate, one of the things I realized, but I had to learn how to do it. I had to learn a certain area. Right now, I'm in the area in Seattle called Beacon Hill. I door knocked all 11,000 home on Beacon Hill, probably twice a year. I know every street. I know every alley. I know a three bedroom, two bath where to sell for in this area and this area, this area, this area. I know what rents are going for. I know what home selling ads is will sell for. I knew that because I actually study the neighborhood and I see different style home. And then I see when the market time, you know, I noticed that in January, February, March, April, it's a little slower. Price is a little lower. April, May, June, July prices are more higher. I knew that. And I kept track of every home that ever came on the market. I kept track of every home that went pending and sold in the market. I just knew this area in and out. So if you started on real estate investing, know your area. If you've got a wholesale flip or do the bird. Number three partnership. Oh man. I can tell you story after story and my opinion on partnership. I was blessed. You got, when I started real estate, I didn't have a lot of money. What I did for value was I learned how to go out there and find deal by knocking on the door, cold calling, marketing to seller, asked if they want to sell their home. I was a realtor. Also the home that was actually nice. I ended up just listing the property, the home that I knew that I can sell to investor. I can sell it off market. And so when I sold it to investor, they will actually give me the commission. They'll pay me. And then a lot of times they'll give me the list back. I did that for a few years just to learn, understand the whole math around real estate investing and rehabbing and ARV. I did that. I understand how you hire a contractor, what you look for in sub, how much you should actually cost for rehab. I learned how to do all that. Then what happened when I started flipping houses, I didn't really need a partner because I understand how to do it, but I had to actually get my schooling from selling deals to other investors. And then what happened was I want to start building. I did the same thing. I started selling land to builder and I started learning the rope, working with builder. And eventually what happened was me and this guy named Paul Lombolardi, we became good friends and we ended up just partnering. He ended up just being the person that actually built it. I'll be the person finding it. We'll find this together. And we had a great partnership. Well, later on in my career, I started having different people that came to me. Hey, that's where you partner with me with this. We partner with that. And you know what, you guys, I didn't spend time venting out other partnership because I was just taking them in as partner or money partner. And I didn't spend a time qualifying them. And I learned my lesson because they became bad partners. All right. Number four, overpaying for a property, hoping that the market is going to actually keep going. When I started investing in real estate, I wanted to be eager beaver. I wanted to run fast. I wanted to hurry and buy as many deals as I can. So I can actually keep up with all the Joneses who've been out there for a long time. And what happened was I see property, I evaluate the deal and my gut says 300,000 is probably the high side. Should be more like 250, 275. And what happened is I say to myself, all right, if I buy for 300, if I can get the contractor down a little bit on rehab and if the market stay here or it gets better in six months, by the time I'm done, I was lucky when I got started, the market was doing this. And so I did that process. I pay a little more for it. I didn't get the rehab down as much as I like it to be, but the market kept going up and I kept winning. Well, when you start off in a good market, you think, Oh man, I got this all handled. And what happened? You use the same strategy when the market is flat or the market going down. And guess what happened? That's when you lose your ass off. All right. Number five, over budgeting or maybe even under budgeting. Okay. Let me talk about both. As you're an investor, rehabbing houses or new construction, you always try to get the budget as low as possible. And what happened is that, you know, cause you don't want to, you know, you're trying to make the most profit. I've done both. I over budget the property so I can actually make sure I have enough money. And then I ended up not using all the money, but I was paying it because it was a draw coming out. Okay. And then I also under budget, which not intentionally. Recently I had a property where I had it all budget right on a new construction. By the time we was getting closer and closer on being finished every month, I had to pay a little more cause we're over budget a little more. By the time I got done, you guys, I had to pay literally over half a million dollars more because I was so under budget on the new construction site. Now that happened to us in a single family. Sometimes we'll go, you know what? Okay. We're okay with leaving this window or it's okay. Not doing the French drain. Okay. Cause you know, it don't look like it's leaking. We finished the whole house up and all of a sudden the winter come. And then all of a sudden the rain come, the basement, it basically leaked. And then what happened, you guys, we got to go back in, we're going to fix it. And then we end up costing us more money because I didn't want to budget all the kind of stuff in there. And that's what happened. Sometime when you do the deals, you got to just be realistic. You got to ask them what's the worst case scenario and try to budget that in. And also maybe add in 5% contingency, basically give you a little more room for a little bit of over overrun 5%. I think it's good. We do that in new construction. All right. Number six, hiring the wrong contractor or a builder. Ah, this one I'm just going to tell you upfront, unless you know someone that has been using a certain contractor or builder and you know this person well, and they gave the referral. Like right now, my good friend, Chris Waltz, he's a builder and I have student in springboard that I'm teaching them how to build new construction. So I say to Chris, I like this student. He has money. He'd be a good client. Chris, can you build for this guy or this gal? And Chris, if you say yes, this person that we refer to his life is easy because this is somebody I use. And when I give it to them, they're solid. They don't have to go through the mistake. If you don't have someone that close, I'm just going to take a front. You're going to have to go through a few contractor or builder to actually realize you don't have the perfect one. So just accept the reality. That's just part of rehabbing houses or building new construction. What you got to do, folks, you got to ask for referral. Getting from a yellow page, getting from telephone book or social media. It's risky. You got to ask investors who actually already use the contractor and you actually got to make sure you get a lot of, a lot of, a lot of review from the people to tell you this person is solid. The next thing is you got to actually go meet these contractor at their site. You got to look at the finishing. You got to interview them. You got to ask them how long will this project originally be done. Six months. Well, you're already eight months already. Why is it taking so long? And so you got to interview them. Sometime it's okay to say no and then move on and go find somebody else. I would recommend you probably go talk to at least probably two or three contractor builder before you actually hire somebody. Okay. And try to get all referral, but go look at their project and do a lot of questions. Ask a lot of questions. How long, how long you've been in business? What's your budget like? How do you do your draw? Right. You know what I mean? How long do you estimate? What happens if you don't meet this expectation? Do you pay me that kind of stuff? Okay. I would do all that you guys before you got hired the contract or a builder. All right. Number seven, over leveraging the property. I got hurt in 2008. I over leveraged. This was the worst thing. Everybody always talk about it. You know what I mean? Back in the day, they talk about it a lot. Now on social media. Yeah. Leverage. Willow says I'm a leverage, leverage. You got to be smart people. Okay. You got to be smart. Let me tell you what happened. I buy a property. I put down 20%. The property go up in value. And then what happened is that then I refinance, I will take as much as I can out on this property. So I can use that money to buy another property. I'll refi. And sometime I'll pull so much money out of it. Well where the property break even, or I pay maybe a hundred, $200 negative, basically every single month. Just so I have more money to go buy the next property. When I take the money, I'll go buy the next property. I don't mind if I put it down sometime break even, or sometime I got to come out of pocket and pay the difference because I can't get enough rent to cover the mortgage and that. So sometimes I break even on both or sometime I actually lose a hundred, $200, $300 on both. Just so I can actually say, I got another property. Well, it works well when the market goes well, but the moment when the market adjusts, just like what's just happened recently, all of a sudden tenant, they lose their job. And then they got to basically say, I can't pay no more. Right? I'm leaving. So what happened when they leave? Now the market is soft. Tenant, they don't make no kind of money they're making. And so what happened? They want to leave. Or some of them, they're trying to renegotiate when the lease is up, which you can't afford to do when they leave. Now the market is soft. It takes longer to get a tenant. And on top of that, I got to pay every single month. Also, the problem is these properties are so negative. I don't have enough equity in them. The equity is very small. So even when I want to sell it right during the time when the 2008 market, somebody's probably upside down. I want to sell it. The problem, I was upside down. Okay. I didn't have no equity. That's the other problem. So folks, there's time to leverage and there's time not to leverage. Okay. Number eight, cash reserve. Nobody talked about cash reserve folks for some reason in this real estate investment game, because everybody always, as soon as they make enough money, they take all the money they make, they put everything back on the table and they buy more property, but they never have reserve. Listen, I made the mistake on doing that. Also, I make enough money that I take all the money and I buy myself a flip. I use all the money, every bit of money I can. And I basically flip. What happened is that when basically when the property get over budget and I don't have any cash reserve, all of a sudden I got to come out of pocket. If I don't have money come out of pocket, I got to go scramble ask my friends and my family to borrow some money. That was a mistake I learned at the same time when I do new construction and you don't have cash reserve folks, new construction. You think the budget is $250,000 to build this. Things change. Sometimes it takes slower to get certain things. Sometimes they run out of this product you thought you could use them to get. You got to pay extra for this faucet over here. All of a sudden you went from, you know, $250,000 to build something to $300,000. If you don't have the cash reserve, you got to go scramble your friend, ask for the extra $50,000 that's happened to everybody out there because nobody put any cash reserve aside. Okay. Now when you do rental property folks, you want to have cash reserve. You just never know when the house is going to go vacant because here's the thing. When the house go vacant, if the house get damaged, you got to have money to actually rehab the house to get it ready for rent again. The same time, depending how long you're vacant, one month, two months, three months, four months, you got to pay the mortgage on that every single month. So you got to be smart. And the most important thing you want, why you want cash reserve, you guys don't want to talk about this. Peace of mind money. That is all this is. Peace of mind money. Period. Number nine, not taking care of your tenant. Your tenant is your VIP. If you're in real estate, your seller and your buyer is your bloodline. That's your VIP client. If you're in the car business selling cars, okay. Let's say Rolls Royce, the buyer who's buying, that's your bloodline. That is your basically a VIP. The problem with people when they take a look at being a landlord, they treat their tenant like less than, Oh, you're a tenant. You know, you're, you're, you're, you're, you're below me, right? You pay me, you stay at my house. The problem folks is the mindset without tenant investor, you ain't got nobody paying the mortgage. So you got to look at it like, Hey, they're as valuable just like to a realtor, a buyer and a seller. So you got to start thinking when a tenant is your VIP, if the tenant call and say, Hey, there's a problem with the water heater. We respond back to them within 24 to 48 hour, get it fixed within 24 to 48 hour, get it done. When you take care of your tenant, they take care of you. They take care of your house. They take care of basically the grass. They will take care of it. Keep your house nice and clean. Especially if you remodeled it, you want them to live nice and clean, right? Take care of your property. You take care of them. This is the problem with most investors, but the problem, most investors, when they buy property, they're slumlord basically, right? They don't keep the property clean and then they don't ever fix the property for the, for the tenant. So no wonder why the tenant basically don't do the same for them. So treat your tenant like VIP, they're your bloodline. Number 10, doing too much and doing it too fast. Let me tell you what I realized when I was starting out flipping houses. Of course, I wanted to keep up with all the people who've been around for a long time. Oh, that guy did 10 flip in one year. I want her to get to do 10 flip. And what happened is that I start to buy a property that don't make any sense. So I can say at least I bought it. So I was doing a bunch of deals. And all of a sudden I turn around and I see this guy over here building new construction, single family home. And so what I do, right? Instead of taking my time and learning some of this stuff, right? I go out there and I start trying to do it on my own. Well, thank God. I ran into my friend and partner, Paula Velarde who happened to know about how to do new construction and I started partnering with them. And I remember Paul and I were doing things and I was the guy I was pushing and pushing. Hey Paul, let's do more. Let's do more. I remember one time I pushed Paul to do this one deal. There's like a 24 unit townhouse site. Paul was like, ah, I don't know. This is way too much. I was like, Paul, we can do it, dude. We can do it. And we ended up doing it. And you know what happened? Ah, that deal, it literally you guys didn't do well, right? We lost money in that deal. And then what happened is I meet somebody that's doing townhouses. Okay. And then I started doing townhouses. And then I started telling my partner, Chris Waltz today, come on, Chris, let's do more. Let's do more. Thank God. We didn't get hurt. Okay. But you guys, the problem is we try to do too much too fast. It's okay. You got to be on this game for a long time. You're going to be on the journey for a long time and you can't spend all this money all at the same time. Enjoy yourself. Try not to basically do too much too fast because you're just putting all the stress on yourself. And then what happened? You went out of money and all of a sudden you got to go out there and find an investor. You create more stress. So take your time, enjoy the journey, do what you can do. That way you have a long life. Okay. Versus trying to do a whole bunch of it, stress the ---- out of yourself. And then you're going to have a heart attack and you're gonna have a short journey. All right. That is a wrap for this video. I hope you guys enjoy what I went through. Okay. If you liked this video, please give me a thumbs up. Also, you have any comment, please comment below. Make sure you got help. Subscribe to this channel. We want to hit a hundred thousand and we don't want to off to the, off to the 500,000 to a million before the end of the year. Okay. You guys, now listen, you can learn from making your own mistake, but you're smart. You learn from other people mistake. That way you don't have to go through it. Got it.