By Ralph Serrano
Real estate investing doesn’t come with a how-to manual. In this business, everyone learns by doing.
How painful that learning experience has to be is an open question.
Plenty of newbies make these six common mistakes. If you can avoid them, you’ll have an early leg up on the competition.
1. Trying to Take on That Over-ambitious Flip
Put another way: don’t bite off more than you can chew. Tackling an overly ambitious flip right out of the gate is a recipe for disaster — a surefire way to scare yourself off future renovation opportunities that actually make sense.
“Always run your projections and be conservative, allowing for a margin of error.” — Ralph Serrano
What’s even easier is finding a retired or non-competitive mentor (or a more experienced business partner) to help you evaluate
2. Neglecting to Run Basic Cash Flow Projections
If you’re planning to buy and hold rental property, it’s imperative to run a cash flow analysis. Remember that running a cash flow projection is just part of your obligation here. You also need to understand how to interpret the data.
3. Going With an Absentee Property Manager
Many real estate investing experts advise investors to restrict their search within narrowly defined geographies, though as your portfolio grows, you’ll find it increasingly difficult to limit ownership to properties within a quick drive of your home or office.
Anyway, it’s not necessary to be so exclusive, provided you have a trusted property manager who’s able to get onsite at a moment’s notice. Think twice about working with a property manager who fails to meet this all-important criteria, even if you know them well.
4. Expecting Airbnb to Solve All Problems
Short-term rentals are trendy these days, and it’s undeniable that they’re the surest path to profitability in high-demand submarkets that see lots of business and leisure travel traffic. But these submarkets are the exception, not the rule. Even if your property can plausibly command a higher nightly rate as a short-term rental, guaranteeing round-the-calendar occupancy may well be a safer — and ultimately more profitable — bet.
5. Working With Cut-rate Contractors (And Failing to Manage Them Properly)
Cheaper usually isn’t better, but you already knew that.
So why are you scouring your market for the cheapest contractors and subs money can buy? Sure, negotiating here and there is to be expected, but vendors willing to undercut their competitors before you even ask might not be the ones you want to rely on in a pinch.
Do yourself a favor and assess contractor quality on the basis of prior work product and references, not how little they’re willing to charge. It’s better to pay more for a job well done than to pay (almost) twice as much for a mistake that never had to happen.
6. Skipping Your Market Research
Finally, far too many rookie investors skip basic market research. Even if you’ve lived in the same city your whole life, there’s a lot you don’t know about what makes its real estate market tick, to say nothing of the submarkets into which you rarely if ever venture. This is one case where doing your homework can really pay off.
Have you already made any of these rookie real estate investing mistakes?
Safe Harbor Equity founder Ralph Serrano lives in Miami, Florida, with his family.