Mistakes. We all make them.
Hopefully, we all learn from them. It’s a natural occurrence that allows us to reflect on things that could have been done better. Some people ignore mistakes. Those are the people who are prohibiting themselves from growing (as a person and many times as a business).
Everyone makes mistakes.
We asked some industry experts to tell us a bit about one of their biggest mistakes. Whether it was their first deal or 20th deal… they remember these mistakes clearly.
Below you’ll find raw, real life experiences from 13 real estate investors of some of their biggest mistakes they’ve made in their business. Some are longer than others… we didn’t want to leave ANYTHING out that you might be able to learn from.
Take notes and learn from the best!
1) I didn’t have a plan.
I thought I could just buy this property, fix it up and stick it on the market. I had no real plan, no real sense of scheduling, and no sense of the cost of time. I thought I could just wing it, so that’s how I approached it. I learned the hard way and paid the price.
2) I did absolutely everything out of order
Now that I’ve been doing this for a few years, I know that there’s a specific order in which things must be accomplished. But, I didn’t know that in the beginning. I would literally add weeks on the schedule and thousands to the budget because I did things “out of order.”
3) I made the decision to do the work myself
If you are a handy person with construction experience and you have real skills, then it might be a good choice for you to do the work yourself. If that’s where your skill lies and you can bring that equity to your deals, then use that skill and bring that equity! However, this was not my skill. I’m one of the worst handymen that you’ve ever seen. You can ask my wife. When something breaks our house, she’s the one that fixes it. I now know that my core skills are in finding deals, working with investors, and training people to have success in real estate investment.
I outsource all of my weaknesses and I suggest you do the same. I can’t swing a hammer or man a tool belt, so I leave it to the people who can! You need to be honest with yourself about what you can do and what you can’t do.
Play to your strengths and you will be more efficient, more effective, and you will ultimately make more money. This is a biggie.
4) I had friends help me.
This is almost never a good idea. Especially if you have college buddies like I had at the time. Unless your friend brings an expertise in construction or brings some kind of true incentive to get the project finished, it doesn’t work well.
When I had my friends come to help me, it usually turned into more of a party with a three-hour lunch in the middle of the day. Very little was getting done at the house. Sure we had fun, but our goal was to quickly and efficiently rehab that property (not test the limits of our pizza eating abilities). Sticking to a work related goal is hard to do with friends. It’s also hard to fire friends.
5) I tried to solve major problems myself instead of calling a professional.
This house had a significant bug problem: thousands of roaches! I decided to try and get rid of roaches by going to Walmart and buying heavy-duty bug bombs. I set off the bombs and came back 2 days later. When I walked in the next day I found the roaches not only alive, also laughing at me. Not only did it not kill them, but I think actually made them stronger!!
Eventually I figured out that I could not solve the problem myself, and I called in a professional. He ended up having to come back four times over the course of two weeks to get rid of all those German cockroaches! This wasn’t a big mistake that cost me too much money by itself. But when you add up 3 or 4 mistakes like this, they can be costly.
6) I repaired things that should have been replaced.
There was a water heater in this property that had rusted and developed some leakage. In my brilliance, I decided to seal the leak myself instead of calling a pro. I had absolutely no idea what I was doing! The pro would have told me to trash the heater and buy a new one that worked perfectly for $300. But I decided to seal it myself.
A couple of weeks later, I arrived at the property to find the consequences of my “bright idea.” The leak re-emerged even worse than before and the brand new carpet was soaked throughout the property. I had to spend the next 3 days with industrial dryers running 24/7 to save the carpet. I just barely saved it. If I hadn’t, it would have cost me about $3,000 for new carpet. In my attempt to save $300 I almost lost $3,000. Are you taking notes? That doesn’t even count the cost of renting the dryers and losing 3 days or renovation time.
7) I paid too much for work that I hired out.
I didn’t bring in competitive bids, which is a huge mistake when you are first starting out. Now I know to bring in 2-3 plumbers to compete against each other and get the best price. On this deal, I called in one. That mistake resulted in an extra $1,500 on my total spent. I paid $4,000 for what I later learned should have cost me $2,500. OUCH!
8) I didn’t consult ANYone about ANYthing!
I could have easily called upon numerous sources for some kind of advice. I could have asked other investors, realtors, my local REI club, my mom… you get the drift. Anyone would be better than no one. But I didn’t do that. I decided that I was the man. I relied on my knowledge (which was non-existent at this point), and I paid the price. I was too proud to admit that I didn’t know what I was doing. Have you done that at some point in your life? I’m pretty sure most of us have!
9) I took shortcuts that made things worse.
The previous owner of the property had nailed an American flag into the roof. That’s right, “into” the roof. While I appreciated their patriotism, it was a shame that they used 4-inch nails that went all the way through the roof and created multiple leaks. So what do you think I did? You’re probably seeing a pattern emerged by now. Naturally I decided I would fix the roof myself by pumping a little bit of tar into the holes.
Little did I know there’s an actual process for roof repair (who knew?). It would have been an easy fix had I not done my own repairs. I had to hire an experienced roofer to come out and undo what I had done so the repair could be done correctly. This is just another example of how I messed up by trying to do it myself when I should’ve hired a professional.
10) Hiring the wrong professional for the job.
Well, I didn’t try to repair this one myself, but I did manage to screw it up still. The house had a pool. The pool’s pump system was pretty old and was on its last leg. I tried to have my handyman rig the system so it would work at least good enough to pass an inspection. He rigged it. It was functional (barely), but it didn’t pass inspection.
In the end I had to scramble for the first available pool guy. I didn’t have the luxury of shopping for a good price, because at that point the deal was on the line. Once again, I should have immediately called a professional. As it turned out, I over-paid to have the job done twice. Nice one, Matt!
The list could go on, but I think you get the point. It’s almost humorous how many mistakes I made. But maybe you are now in the same place I was in back then. Don’t be like me!
My biggest mistake as an investor happened in 2006. We actually saw the market shifting and had been watching the market stats changing, and we kept going anyway. We were SO INTOXICATED by making $$$ so fast and furious, it was as if we could NOT stop. I actually remember getting a notification from one of my mortgage guys in Oct 2006 that the lenders were going to stop buying 80/20 loans on January 1st, 2007 and I just ignored it and actually convinced myself and my team that they could NOT stop the train/machine without a worldwide disaster. Needless to say, we know that 1/2 of the mortgage companies in America were out of business by April 2007 and the Alt A meltdown (most call it a Subprime meltdown out of ignorance) was on. I was on the front lines.
So, for me, having always bought right and generally NOT speculating, I decided to IGNORE the market telling me it had and was shifting, and it cost me damn near everything.
Haven’t we all made mistakes? Mistakes are part of the process and thankfully they usually aren’t fatal.
Without a doubt, the biggest mistake I made when I first started investing in real estate was to just “dabble”. In the beginning I had another very demanding full time business so I wasn’t very aggressive in building my “second business”. In fact those first few years I treated my real estate business more like a hobby that paid really well when I worked at it.
My original plan was to do some rehabs and take that profit and buy some rentals. This was exactly what I did. However looking back, I was slow to create systems and even slower to outsource.
If I could go back and have a “do over” I would think of my part-time real estate investing as a real business (no matter how much or how little I was doing) right from the beginning. I would avoid falling victim to the “I can do it all myself syndrome”. No one can do it all. You should concentrate on what you do best and hire out the rest.
My biggest mistake in real estate was simply not having the confidence to think BIG enough. Playing small when I had the ability to play bigger simply was a decision. I wish I made that decision faster, but life is all good so I’m not going to cry over spilt milk.
It is so important for us to remember that we are in control. Shut off outside influences if they are not driving you towards a bigger vision. Only we decide and believe what is achievable. Make it happen!
My biggest mistake as a real estate investor would have to be the purchase of 32 apartments to convert them to condos in Austin, Texas in 2007. We thought we were escaping the downturn in the southern California market, but we still got hurt in Texas. Part of it was the lack of available financing for our end buyers after we renovated due to the national mortgage market problems. Another contributing factor to the overall failure of the project was that we were trying to sell ownership of condos in a rental/apartment mentality neighborhood. We had neighbors across the street from our complex leaving old furniture out in their yards. We would pay our contractors to remove them to make the neighborhood look nicer, but it still hurt us.
We learned some lessons and came back to California to flip homes one at a time.
My biggest mistake as a real estate investor honestly is going to be a bit different from most… because I’m not a full-time investor and never will be. I love using real estate for my passive and wealth building activities… and I love starting other businesses for my active income to pile into real estate. But my biggest mistake is this past 18 months in going on hiatus as far as buying new properties goes while I grew my current company. I wish I would have kept with my original real estate buying plan and not taken almost 2 years off from buying a new property… because in that 2 years I missed some great deals and I didn’t purposefully deploy my money in an optimal way. So now I’m ramping things back up and looking for apartment buildings and commercial properties again but missed some great deals because I had my blinders on and was so focused on my other company. So the lesson is… whatever your long-term wealth building plan is… stick to it and be consistent. Consistency is what makes you wealthy over the years.
Hands down, there is no question about it: the biggest mistake I’ve made as a real estate investor was when I started out. I was a real estate agent already, and I was working with real estate investors. I thought because I was helping them find properties and sell them, that I could become a real estate investor myself. I thought I knew enough. There’s so much stuff that happens in the middle; working with contractors, how to bid the job, and all I knew was how to buy them and how to sell them. The biggest and best tip I can give to you is to get educated. I did not get educated before I first started. I thought because I was a real estate agent that worked with real estate investors first, I was good…
Well, I was wrong. The best thing I ever did was get an education. I’ve actually continued with my education every single year since I became a successful real estate investor. It took about a year to really get the business going. Because I realize how much impact education has had on my business I still spend about $30,000 a year on education. $30K a year on MasterMinds, on education, on just learning more, learning something I know nothing about. I’m constantly learning. I will be learning until the day that I die. I absolutely love it. There’s always something new or some little trick. I go to a marketing conference or a MasterMind as often as I can. There’s MasterMinds that I spend I spend $10-20K on every year. I’m only looking for one little tweak, one little two-millimeter shift as Tony Robbins says. You’re two-millimeters away from what you want. Just take one tip each time, and implement that. It’s hard enough to implement one thing, let alone ten. Just pick one thing that works for you.
About five or six years ago, I was at a marketing conference. Nothing to do with real estate, but just marketing, and there was a guy on stage who really stood out to me. There were about fifteen guys up there that were involved with high level MasterMind. It cost $50K to be at. That’s right: Fifty thousand dollars…PER YEAR! The thing I learned from that is one of these guys, he went to the first one. They met 4 times a year. It was a two-day event. The first day, he left after the first two hours. All the guys are like laughing, and like, “What happened to the guy?” The next time they all saw him was three or four months later. They’re like, “What happened to you, man?” He goes, “Hey, I got my one good idea. And I went and implemented it, and it made me $1.5 million dollars.” That was just since four months ago when they had met. He said, “I know myself. I know how I learn. I saw my idea. That was my gold nugget. If I stuck around, I would have learned five, six, or ten more things that I would have wanted to implement, but I can’t implement everything … I know I can’t implement them all, so I decided to just take my one idea and leave. If I hear the other ideas I’ll want to implement them, because I know they’re going to be good ideas.” He knew himself and stuck to it.
Anyway, all I can tell you is that you should get an education. Get an education. Get an education. I cannot stress enough how important that is. Obviously you’re here listening to FlipNerd because you are wanting to get educated and you’re in a great place for that. They have great information here. I hope you found this useful.
Always do the right thing. When you are fixing up houses, there are always things you will encounter that you did not anticipate. Yes it may cost you more up front but you will sleep easier at night knowing that you did the right thing. One mistake we made was when we bought a 4-plex in Long Beach. It was run down and vacant. It had a lot of repairs that needed to be done. I remember being warned by our plumber that most of the plumbing was shot and it was only a matter of time before we would have problems. For some reason, we opted to just deal with the plumbing as the issues arose. Today that property is a performing property…and yes we have plumbing issues. We wish we would have fixed the problem the right way from the start…after all it was completely vacant in the beginning. Now whenever there is a problem in one unit, it usually creates a problem in another unit, and so on. Basically, if we would have spent the money up front we would have ended up saving more money in the long run.
My worst real estate deal was a house that I purchased on an auction that was about four hours away from where I live. We found out after we purchased this home that the city thought it was haunted and that someone had hung himself or herself in the property. I tried to start this project in the middle of the winter and found out that the gas source had been removed from the property. Thinking this would be no big deal, when we called to get it re-hooked up, we were told we were on a state highway and that the state would have to come in and issue a permit for the property in order to get gas to the property. As you can probably understand, working with the state is never easy. This took over six months to get the gas to the property and that winter was a brutal winter. The house was not well insulated and it was below 0° almost the entire winter. Needless to say, not much work got done during that winter. By the time I could get the gas out there, the contractor that I had hired to do the property and already paid a small upfront deposit and one small draw to get going on the property decided to bail on me. He never told me that he was bailing and I lost 2 months waiting on him.
This whole time I kind of felt bad because he had done more work than I had paid him for and I was just trusting that he was going to finish the property but personal issues got in the way of this. Since this property was so far away, it took me another month to find a contractor that was willing to go in there and finish the job. As always, when one contractor comes in after another contractor, there’s always finger pointing and “he didn’t do it this way” or “blah-blah-blah” so this project took way too long and cost me way more money than I had anticipated. By the time the project actually completed, it was almost a year later. We were into the property $20,000 more than what we originally had thought we would be. We originally planned on this home being a fix and flip but ended up turning it into a rental which at this point has never made us a dime but our lender is still getting his monthly payments. I highly believe in taking care of my lenders even though it is not always good for me. I still have yet to make a dime on this property but at least it’s rented and there is a good tenant in the property and we are not losing money anymore…
The biggest mistake I made was taking on a project that was too big for my experience level. Dealing with others in this industry can be a shock as the people you deal with come from a varied and diverse background and ethics. Making assumptions that people will do what they say they will do was a big mistake.
I decided to add square footage to my second ever project. Unfortunately, my first contractor (recommended by my hard money lender) over promised on his capabilities and his timeline, lied about where the crew was when I would “drop in”, and I eventually had to fire him. Not only did he not pay his subs, but also many of them put liens on the property, which had to be paid when it sold.
Then I hired another contractor that according to my “5 Styles of Contractors”, I call the Perfectionist. He did really good work, but he couldn’t understand the concept of “hard money” and the costs involved. Anytime I tried to push up the pace, he stood his ground and wouldn’t let me hire other people to punch out the project. Again, had I met with those 2 contractors in the past, I would handle both of them very differently now.
Finally we were ready to build the deck, and we got 3 weeks of rain. It was finally listed for sale just before the winter holidays, and it sat there on the market for months. Finances got so tight for me I put my hard money lender payment on a credit card! I couldn’t pay the hard money lender any more after that. Over budget and over time, I faced extension fees and couldn’t possibly pay him. When he called me he was met with my tears as I sobbed about the situation. He actually recommended I not stay in Real Estate.
Luckily I didn’t take his advice and I’ve been buying, flipping, renovating and selling properties ever since, and most of them have been profitable.
Fortunately I haven’t made a lot of mistakes in my career as an investor, but one big one was a lesson I learned early in my career. I was buying a lot of houses in Kansas City in the mid 1990’s and most were in the blue-collar middle income price range. The first high-end house I purchased provided me with a huge learning experience. It was a fairly heavy rehab, everything except foundation work.
The big mistake I made was using my same crew that rehabbed many, many, mid-range houses for me. I made the assumption they could do the quality work needed to rehab my high-end buy. Nope, not even close! Not all contractors are created equal. A contractor who was proficient in a $80K house, isn’t necessarily skilled enough to do a $250K house… and mine wasn’t. Had to undo, redo, and discount after a much extended market time because of inferior work. And it wasn’t all my contractors fault. I learned a lot about the level of finish required to sell a higher priced house fast! The lesson, don’t cut corners, with materials OR labor on a higher priced home. It will cost you much more in the long run.
The BIGGEST mistake I made as an investor is focusing too much on real estate investing tactics and not devoting enough time on becoming a better business person.
In the beginning, I was focusing on doing deals and making money. It’s so easy to see that nice fat check and think that you’ve just earned the right to go on a two week vacation to Europe and get that nice fancy car that you wanted. And when the money ran out, it was just replenished with more deals.
The challenge was that it wasn’t really my money, not all of it. I didn’t understand that a $30,000 profit wasn’t all mine to keep (not if I wanted to grow the business) Some of it needed to go back to marketing. I needed to start saving to build a cushion when I had a slow month. I needed to start thinking of the staff I needed to hire and people to help me grow the business. Instead, I did the opposite and used the business as my personal money jar.
What I should have done instead was attend a business seminar (instead of another real estate seminar). I needed to seek advice from entrepreneurs that could guide me to better understand how a real business operates. I would have kept and made a lot more money.
When I first started out, I had no money for marketing. I was literally broke. I had just lost my job and I was bankrupt. I will never forget this time in my life. So I took the last few thousand dollars that I had to my name and used it to buy a list. Unfortunately, when I was entering in all the list criteria, I forgot to include a VERY important parameter (last market sale date)!
Because I forgot to enter this “critical” piece of information, the resulting list was (at least at first glance) useless. The list I received from the company consisted of people who had 100% equity and who just bought their homes within the last 3 to 6 months! So there was NO one on that list who was motivated because they were all brand new cash buyers…who just paid full price for their homes.
This was a TOTAL disaster! I just spent the last money I had to my name to buy this list and I was devastated! Rather than get depressed and give up, I started thinking about ways I could take lemons and make lemonade.
So what I ended up doing was using this first mailing to find cash buyers! I actually ended up finding a quite a few “solid” cash buyers on the list! I then sold my golf cart (these things are like gold in my neck of the woods) to do my 2nd mailing and the rest is history. Needless to say, I was a LOT more careful when I entered the criteria for my 2nd list.
The lesson? You have to take MASSIVE action and be willing to fail. You’ve gotta know that failure is coming and you have to be willing to push through. When this happened, I was totally defeated. I could have easily given up…but I refused to!! This was a great lesson and I’m glad it happened.
Your biggest mistake just might be a stepping-stone to your success. As you’ve read above, these investors have admitted to their mistake, owned it, and learned from it. No matter where you’re at in your real estate investing career, there’s always knowledge to gain from others. Take a few minutes and think about a few quotes from above that resonate with you and your business. What had the most impact of you? Has it given you ideas of what to do with your business in the future?