10 Worst Mistakes in Real Estate

Mistakes in real estate are very costly. I know because I lost almost $1M because of them.

Back in 2017, I was on top of the world. I made a ton of money on real estate and thought that it would keep going that way. But in 2018, I made terrible mistakes that led to me taking a huge loss.

I had to spend 2019 doing damage control. Looking back, I was able to identify the mistakes I made, And I’m here to share what they are, so you can avoid making the same mistakes.

Here are the 10 worst mistakes you could possibly make in real estate (which cost me to lose almost $1 million!).

Buying Too High

At the end of 2017 and the beginning of 2018, I was desperately looking for my next deal. I didn’t want to be seen as a one-hit-wonder. So when the opportunity to get my next flip project came up, I jumped at it even though the margins were a bit thin.

People were telling me to stay away from it. But I was confident I could make it work. Unfortunately, when the time came to sell, I couldn’t sell it without taking a huge loss.

Buying from an Unverified Wholesaler

One time I bought a property from a wholesaler. We got along well, so I didn’t think much of it. But I found out later that he was buying from another wholesaler who was buying from the seller. Now, if I had done my research and looked into it, I would have been able to cut out the middleman and saved myself some money.

Financing Too Many Projects at the Same Time

There’s nothing wrong with using leverage. But I was juggling so many projects at the same time. Back then, I thought the upsides are better than the downsides. Sad to say, all the projects went down at the exact same time.

Now, when I think about it, I should have just did one project at a time

Using One Team for All Projects

It’s also good to diversify and have 3-4 people who can work with you on any given notice. When I was using only one team for all my projects, I was completely dependent on them.

If someone got sick, or if they were unavailable, or if they raised their rates, there was no one else to take over. And this was bad as I didn’t have any other options.

Borrowing Money from Friends Without Thinking about a Downturn

I’m not saying it’s bad to borrow money from friends. But borrowing too much money without thinking about a downturn could be disastrous. I made that same mistake. Because I had all that money, I thought I could do so much more deals.

But the inevitable downturn came and I lost that money. So don’t do borrow money unless you’re sure you could pay it back.

The moment I told my friend that I had lost their money was the worst conversation I had to make in my life. Stuff like these could ruin friendships, so be careful.

Not Having a Second Exit Strategy

If your strategy is to buy, rehab, then sell the property, then that’s great. But you need to have another strategy in case the market tanks and you couldn’t sell it.

Think of what options you have. Can you rent it out for cash flow? Do an Airbnb? Live in it? You have to be prepared. Or else you might find yourself selling the property at a loss as I did.

Not Having a Mentor

I used to think that I was so smart that I could figure everything out on my own. But having a mentor guide you is great. Your mentor can warn you if a deal isn’t good. Help you look at the financials. Refer you to the right contracting team.

There’s so much value you can get from having a mentor, so go to meetup groups and start asking the more experienced people for help.

Not Building a Better Network

Being a real estate investor doesn’t mean you have to work alone. I didn’t realize it when I started, but by building a network with other investors, you could bounce ideas with them, share resources, and even partner with them on some deals.

So if you’re going to meetup groups, learn to work the room. Introduce yourself to other investors and find out what other people are doing.

Lack of Deal Flow

You want to accept only great deals. But if you didn’t build up your deal flow, you’ll find yourself desperately looking for any deal. This is how you could end up accepting subpar deals.

But if you have a deal flow, you can cherry-pick and accept only the best deals.

Not Understanding the End Buyer

Growing up in a middle-class neighborhood with starter homes, I didn’t understand the preferences of people who buy houses in the $2M price range. I didn’t know they wanted garages!

Because of that, the house I bought, which didn’t have a garage, had to be sold at a loss.

So you have to understand who your buyer is. What are they looking for? What kind of aesthetics appeal to them?

You also need an eye for design. And you can develop that by looking at open houses, looking through Pinterest or Instagram, and you can even ask for tips from other investors.

You want to avoid hiring a cheap designer who’ll come up with a tacky design. That just won’t make the cut in high-end neighborhoods.

Conclusion

There you have it, the top 10 worst mistakes you could make when buying real estate. So make sure you understand what they are and how you can avoid them.

As for me, I’ve learned from them and will absolutely make sure I never make the same mistake twice. And so should you.