Top 5 Mistakes That Real Estate Investors Make

By: Lou Castillo
1.Not setting enough funds aside for marketing which causes the marketing to stop. Understand that marketing is the cornerstone foundation to this business. If you’re not marketing, then your business is dying. The way you find really great deals is having a lot of leads coming in. It’s about processing through a lot of leads. One out of twenty calls that come in will turn into a deal. 19 of them are pure garbage. That means that if you are only looking at two or three properties a month it is going to take you a long time to find a deal. That is why you have to generate a lot of marketing.

You want to have a lot of marketing and keep it going full time. I have quoted this statistic before but I will say it again. It takes 5-7 impressions or times that somebody has seen your marketing before the masses will start to react. Most marketers will stop marketing after they have had 3-4 impressions on their target market. Just when the marketing will start to work most marketers will quit their marketing. The idea is to start your marketing and to never stop it. Then test, tweak, improve it, repeat it over and over again. If you follow that you will have a very successful real estate investing business.



2.Not having the drop dead price in your head before starting to negotiate. You can’t base the selling price on what the seller is asking. You have to know right up front what is the top offer you can make and still make a profit in this deal. You need to have a formula and follow that formula each and every time. I have given that formula out in previous editions but let me give it to you again in case you don’t have it. It is the after repaired value minus the rehab dollars necessary to bring the property up to the level of comparable sales minus your buy sell and hold costs minus the profit that is to be made. If you are wholesaling it remember there is profit for you and your investor buyer. That will give you your maximum profitable offer. That’s the most that you should pay for a house. That’s your drop dead point. Regardless of what the seller is asking that is your drop-dead point. You can not go higher than that. Never ever exceed that number. Then you should be safe in your investing business.

3.The #3 mistake is becoming a motivated buyer. I went through the formula to determine your maximum price but the motivated buyer decides that they need to get a deal and buy a house so they forget their maximum profitable offer and justify why they can pay more for a property. That’s a motivated buyer. What I have found is that a motivated buyer always turns into a motivated seller. Don’t get yourself into that situation. Don’t become a motivated buyer.

4.Not considering cash flow. It is not just about profit and loss but it is about having the cash to be able to sustain you through the entire project in fact throughout your entire life. For instance, you are doing a rehab, the rehab will make X dollars in the end but do you have the dollars it is going to take to get to that point. Let’s say you are getting a hard money loan. You are going to hold that money in escrow. Well that means that you have to have some working capital to be able to get some work done before you can get reimbursed. I have seen investors forget that and then what happens is they run out of cash and then the project stops. When a project stops you are talking about a lot of money being wasted. Never let it stop.

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