Learn the 6 biggest mistakes property investors make and how to avoid them in this must-watch video.
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The 6 Biggest Mistakes Property Investors Make
Joe: Joe Crump here. The six biggest mistakes property investors make. I see these things happen over and over.
Joe: One – borrowing money. They borrow money from a bank. It just doesn’t make sense. Look at the interest. Look at how much it costs. Look what it takes to make that happen. Stop borrowing money. Use seller financing instead. It’s just not necessary to use bank loans.
Joe: Two – using down payments. You don’t have to put money down. Now, if you go out and borrow from a bank you’re going to have to put money down. But if you’re dealing with the seller, you don’t have to put any money down. You just need to negotiate properly and show them here’s what I’ll do, here’s how I’ll do it. They can sell their property to you subject to, multi-mortgage, land contract, assignable cash deals, you know, lease options. All these different ways that you can buy properties that require no cash out of your pocket. They require no credit at all.
Joe: Three – not buying right. You can buy properties with zero down, but not buy right. Let’s say you buy a subject to property that is a $100K property. It rents for $1,000 a month and it has a mortgage on it of $1,000 a month. As soon as you take over that property the taxes are probably going to go up because you’re now a landlord instead of a homeowner and your taxes are different for landlords then they are for homeowners. So, let’s say it goes up $100 a month. Now you’ve got $1,100 a month going out and $1,000 a month coming in. And if you have vacancies, you’re going to have more negative cash flow on top of that.
Joe: Now, it still might make sense to keep that property if it had a bunch of equity in it, perhaps. Let’s say it was worth $150K and you were able to get it for $100K mortgage, but you had $100 a month negative cash flow. That would make sense. But you have to really be careful about your cash flow. Cash flow is very important in real estate investing. It’s not just about how much you’re making. It’s also about how much cash flow you have and whether or not you can maintain your business and continue to make your bills every month. So, make sure that you purchase your property right. If you’re buying a property that you’re flipping, or you’re buying it to do a rehab. Make sure that you’re buying it below market value, far enough below market value so that you have a profit.
Joe: People don’t always look at their financing costs, they don’t look at their selling costs, they don’t look at their holding cost. They have rose-colored glasses on when they look at how much it’s going to cost to rehab the property. They say, well, it’s only going to cost this much in materials. Well, the materials typically cost about the same as the work to have it done. So if it’s going to cost you $5,000 in materials it’s going to cost you $5,000 in work to have it done most of the time. So, kind of us that as a ballpark to make sure that you’re not leaving too much money on the table and that you’re negotiating properly when you make an offer on a property.
Joe: The fourth mistake I see is doing too much rehab. We still fall into this problem because I like to have nice properties. I like them to be in great shape. I don’t want to be a slum lord. But you can do too much and you have to be careful on going overboard. So, make the properties nice, make them habitable, make them clean. And then stop. Don’t spend more money than you’ve got. Or, you go in there and you make an estimate on oh, this is going to cost me this much to do this rehab and then you have somebody else come in and do that work and then they charge you twice what you thought it was going to cost. And it may be because you miscalculated, or maybe because they’re overcharging you for that. So you have to be very careful about your rehabs. If you’re doing it yourself usually it can be a lot cheaper.
Joe: But, swinging a hammer is not making you much money. So you’ve got to find somebody who can do that work for you because you’ll make a lot more money if you’re not swinging your own hammer. But then you’ve got to find people you can trust and that takes time to build a relationship. Work with them a little bit at a time, make sure that when you write your contracts out with them that you itemize exactly what they’re going to do and what each job in this process is going to cost. And if you use my contracts it’s going to allow you to get rid of somebody who doesn’t show up. Let’s say you have a contractor who’s got line items of five different things they’re going to do for you. They get done with one and two and then they disappear for two or three weeks or four weeks, and you can’t get ahold of them, you don’t know what’s going on. You’ve already paid them for the two line items that they’ve done. And you need to get somebody else in there to do the work.
Joe: So, you hire somebody else, get them in there and do it. If you had a contract with that guy and you didn’t have my contract, he would have said I can file mechanic’s liens against you. Which has happened to me. That’s why I wrote this contract. Then you have to – and I got through it and I didn’t have to pay him – but it was still a pain in the neck and it slowed everything down and it kept me from getting the property sold because I had a mechanic’s lien against it and I had to fight him to make that happen. But I got somebody else in there and now I have a new contract that if they don’t do the work I can pay them for line items that they’ve done and I can get rid of them and not have a mechanic’s lien filed against me after that. So make sure that you set up your deals with these people properly. So that’s a big mistake if you’re not careful, that you can avoid.
Joe: Number five is not being consistent. Sometimes it makes sense to have a consistent way that you do business over and over and over again. You can systematize that kind of business. You can automate that kind of business. You can outsource that kind of business. Your people will know exactly how to do that kind of work if you set it up for them properly and you do it the same way every time.
Joe: If you’re doing things differently every time it’s going to be difficult for them to understand what you’re doing and you’re going to tend to make mistakes. I’ve seen so many people, so many investors, bend themselves into pretzels in order to try to make a deal work. Say, oh, I can make this work. If I just did this and change this and I tweak this over here, and I take this exception and I do this, which I don’t normally ever do, but I’ll do this instead. Not a good idea. Make sure you do it consistently in a way that you know works, in a way that you want to work. Because the other thing is if you start bending yourself into pretzels like this it’s not going to be any fun. You’re not going to enjoy the work that you’re doing and it’s going to create so many headaches for you. So, make sure that you figure out the best way to do the work and then do it that way over and over and over again consistently.
Joe: And then six is not creating a system of automation and outsourcing to get all this work done for you. People work so many hours, so many investors that go out there and they’ll start from square one and they’ll put a deal together and they’ll talk to a seller and they’ll be amazing on the phone and they’ll have developed those skills and that’s wonderful. And they’ll put that deal together and then they’ll go out there and they’ll find a buyer for that and they’ll make a chunk of cash and they’ll be happy.
Joe: And then they have to start all over again because they don’t have a pipeline. They don’t have a system set up. So, if they had a system set up that was always marketing, always out there doing stuff, always bringing in new buyers, new sellers, you know, building their list all the time and there was a system to do that and they had other people that were making that happen for them they wouldn’t have to worry about that. All they’d have to worry about, maybe, at the beginning, is talking to your sellers, talking to your buyers. Or, you could have somebody else doing that for you as well. Once you know how to do this work it’s not that hard to hire somebody else to do that work for you.
Joe: I don’t talk to buyers or sellers any longer. I don’t do anything but look at the deals and say, yeah, that makes sense; no, let’s not do that; let’s not do that as well. I sign checks, or have my bookkeeper send ACH and we’ll make payments for invoices that way. So all I have to do is call my bookkeeper and say make this payment, take care of this, do that, you know, I’ve talked to the person who’s finding the properties for me. You take care of this. Talk to the person who’s finding the buyers for me. You, you know, bring in the buyers. Here’s what they tell me, here’s what we found. Here’s what’s coming in. Do you want to take this deal? I say, yeah, it looks good, let’s go forward. I have to say yes or no. That’s really all I’ve got to do, or give, or teach, or give explanations on why they should do things the way I want them to do things.
Joe: And then build a system that cross checks between – if this person doesn’t do their job, this person can’t do their job. I try to make checks and balances within my business so that as soon as this person stops doing their job this person finds out about it and then they tell me. And then I can call this person and say, hey, are you going to do your job? And if they don’t, we get rid of them, and if they do then they do their job. And usually it’s just a misunderstanding or something that didn’t get done, and usually if this person can call this person and say, hey, you haven’t done that job yet – oh – yeah – let me get to it and they get it taken care of. And all I have to do is watch the email thread going back and forth between them, which I still do.
Joe: Anyway, those are the biggest mistakes I see as real estate investors. Don’t use your money, don’t use your credit, you know, get the right education. Leverage your time, your effort, your money and you can have a phenomenal business.
Joe: All right. If you like this video, hit the Subscribe button, click on the bell. Hit Like, that helps, too. And go to JoeCrumpBlog.com, you can sign up for my free newsletter. Go to PushButtonAutomarketer.com and look at my automation or come and get mentored by me personally. ZeroDownInvesting.com.
Joe: All right – thanks and good luck.