top investor mistakes€¦ · copyright mmxiii to be or not to be – the realtor decision 1....

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Top Investor Mistakes

Tuesday, April 23, 13

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Disclaimer‣Subject matter is for educational purposes only‣We are not Lawyers, CPA’s, Financial Planners, etc.‣You should always have your contracts, taxes, business plans, etc. reviewed by an attorney and/or financial advisor before completing any real estate transactions

2Tuesday, April 23, 13






Top Categories of Mistakes‣ Marketing‣ Bandit Signs‣ To Be or Not to Be - The Realtor Decision‣ Analyzing Property‣ City Permits‣ Buying HUD properties‣ Buying properties off of the MLS‣ Building your Business Plan – Action vs. Planning‣ Buying in Up Markets‣ Buying in Down Markets‣ Buy and Hold - Landlord mistakes‣ Rehabbing mistakes‣ Wholesaling mistakes‣ Buying from a wholesaler mistakes







Marketing1. Not doing enough of it2. Not hitting people at least 7 times3. Not using the right wording4. Not split testing your marketing to see what works best5. Not tracking where your leads come from and how much they costs6. Not tracking your cost/lead7. Not following up or not following up quickly enough8. Not hitting them at their time of need9. Not practicing the questions you need to ask when you get them

on the phone10.Not joining the local RE clubs to get best practices11.Not creating your buyer’s list so you can actually have someone to

flip the properties to







Yellow Letters Work!







Bandit Signs1. Not putting them in the right places2. Not putting a disposable cell phone (or google voice)

number in the ad3. Having them picked up by sign Nazi’s before anyone

sees them4. Paying someone to do it for you who’s not invested in

your success5. Paying someone in advance to put out your signs – they

may just throw them all away6. Not putting them high enough – tool solution7. Not picking the right colors8. Not following city ordinances





Bandit Signs Work!

7

We Buy HousesAny ConditionFAST CASH

512-555-1212

473-6633







Bandit Signs‣Tip: Put them out on Friday after 5pm & pick them up Sunday night‣Tip: Forget Williamson County







To Be or Not To Be – The REALTOR decision

1. Trying to do it all: Chief Investor, Realtor, CEO, Financial officer and dishwasher

2. Not knowing how much being a Realtor limits you #1 – can’t tell owner to tell their current Realtor to take a hike

3. Not knowing how much being a realtor limits you #2 – must disclose you are a Realtor

4. Not knowing how much being a Realtor limits you #3 – must use state promulgated forms – i.e. can’t use a one page contract

5. Not knowing how much being a Realtor limits you #4 – disclosure of what the property is really worth

6. Not hiring someone else to be your Realtor who has the experience you need to decide on an area to invest in

7. Getting too much book education without getting out there and doing it, plus it’s expensive to maintain the Realtor fees and MLS fees

8. Not disclosing you are a Realtor in a transaction – you are asking for trouble







Disclosure‣I’m a licensed Realtor and Broker in the Great state of Texas, license #0518223







Realtor Tips‣Tip: Become a Realtor if you are doing 3-6 Flips/year‣Tip: Become a Realtor if you want to help others buy and sell real estate‣Tip: Get “Assistant” level access to the MLS for $60/year through your favorite agent‣Tip: You have to have a great Realtor on your Power Team or you won’t survive







Analyzing Property

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1. When doing the CMA, many investors don’t consider the average amount that a seller will pay on behalf of the buyer in closing costs - that could reduce your overall profit by up to ~3% of the final sales price

2. When analyzing holding time, looking solely at Days on Market instead of Months of Inventory

3. Not deducting from the CMA if the property is located next to an eyesore/commercial/apartments/duplexes/RR/etc. - in some cases it will take twice as long to sell and will sell at a discount below other properties (5-10%)

4. Not checking the main drain line - ~$7K expense5. “Swagging” estimates for repairs6. Not including follow-on plumbing repair expenses after

foundation repairs







City Permits

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1. Getting them at all.....2. Not budgeting the time it takes to get the initial permit into your holding

costs3. Not budgeting the time it takes to get the house inspected by the city into

your holding costs4. Not budgeting the additional things the city will want you to update and get

permits for5. Mistaking the inspector for a team player who will help you ID other issues

that he/she won’t tell you about until the 3rd time you’ve failed an inspection

6. Freaking out when you get red-tagged







City Permits‣Tip: Get a permit when you are adding square footage







Buying HUD properties1. It may or may NOT be a good deal2. You have to turn on utilities3. Typically FHA lending areas = high foreclosure rates = lower resale values

because you are competing against other foreclosures4. Not filling out the forms correctly #1 – BLUE ink….5. Not filling out the forms correctly #2 – Not getting the money to the REO

agent in time and losing the property because you’re off or out of town for 1 day – they will re-auction it

6. Not filling out the forms correctly #3 – saying you’re an owner occupant when you’re really an investor – they will probably catch you….

7. Not asking for a rebate from your realtor who might be getting a 5% commission

8. Putting in too high of an offer / Putting in too low of an offer9. Trying to “Assign”/Wholesale the property10. Not getting an inspection – story about water and sewage not being

connected to the property







Buying HUD properties‣Tip: Work with an experienced Foreclosure Realtor







Buying Properties from the MLS

1. It may or may NOT be a good deal2. The seller may or may NOT be motivated3. If it’s on the MLS, everyone has gotten a look at it4. If it’s been on the MLS for a long time, it’s

definitely worth less than the list price5. The sale (history) is recorded and may effect your

resale negotiation



Contract Errors1. Relying on the tax records (or Trulia or Zillow) for

valuation2. Putting down too much option money and not

asking for enough time to evaluate the property3. Putting down too much earnest money and

risking it all if you can’t come up with the money to purchase the house by the sale date



Building your Business Plan1. Spending too much time planning and not enough time

doing2. Listening only to your lawyer3. Listening only to your CPA4. Not having your lawyer and CPA sit down together while

you go over your proposed plan for your business5. Not spending enough time on the right things #1 – not

doing enough marketing6. Not spending enough time on the right things #2 – not

practicing how you handle a real deal when it comes along

7. Selecting one strategy and not doing deals that don’t fit that one strategy







Business Plan‣Tip: Focus all initial efforts on marketing‣Tip: Be “Strategy Agnostic”







Buying Properties in UP Markets

1.Not recognizing it’s an UP market2. It’s okay to pay more in an up market3.Being afraid to tackle a big project (6

months-12 months to complete) at the beginning of an up market

4.Not knowing when the market is going down and changing your strategy at that time





Buying Properties in DOWN Markets

1.Not recognizing it’s an DOWN market2. It’s NOT okay to pay more in an down

market3.Not being afraid to tackle a big project

(6 months-12 months to complete) at the beginning of an down market

4.Not knowing when the market is going back up and changing your strategy at that time




www.LoveAmericanHomes.com Copyright MMXII

The Market Cycle‣Where are we in the market cycle? ‣What’s your strategy in today’s market?







Market Cycle Facts‣ It takes 2x as long to go up as it does to go down‣ It almost always rebounds (starts to recover) at a higher point than where the last cycle ended

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4 yrs2yrs







Seller Psychology‣A seller that is off by 6 months will typically have one of 2 different thoughts:1.Their house is worth more than what it’s actually worth

1.a. They think it’s worth $200K but it’s actually worth 1.b. $180K 2.Their house is worth less than it’s actually worth

2.a They think it’s worth $180K, but it’s actually worth 2.b. $200K

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1b2a2b 1a

$180K$200K

$180K$200K







Buy and Hold – Landlord Mistakes

1. Buy new homes 2. Buy in areas that will have more construction – watch out for the builder “Totem Pole”3. Buy in their own neighborhood – bad leverage, bad cash flow 4. Buy for price - “great deal” in rotten appreciation area (just re-sell it quickly if you get

a good deal – no use holding on to it if it’s not going to appreciate)5. Buy for cash flow in rotten appreciation area – slum lording is not fun and the cash

flow usually dries up quickly due to constant tenant turnover6. Buy in area with lots of other rental properties – you want to buy in an area where

there are hardly any rental properties, where the owners are taking care of their properties

7. Buy for “future potential” a.k.a. in urban crime area 8. Buy for “themselves” (i.e. personal preference for new 4-side brick new in RR vs. old 4-

side wood in Austin) 9. Buy based on advice from Realtors rather than investors 10. Buy too big/too small - Not obey 3/2 rule 11. Not maintaining your own rental property 12. Not hiring the right property manager



Builder Totem Pole







Rehabbing Mistakes1. Trying to do it all yourself – you don’t know the codes and it’ll take you 2-3x as long2. Over improving (and occasionally under improving)3. Not hiring the right contractor #1 – paying up front and you never see them again4. Not hiring the right contractor #2 – going with the lowest bid/going with the highest bid5. Not hiring the right contractor #3 – not knowing when to switch out your contractor6. Not hiring the right contractor #4 – not getting an affidavit of all bills paid signed by your contractor

to verify he paid the suppliers and subs so no one files a lien on your house7. Not getting permits OR getting permits8. Underestimating costs9. Underestimating time to finish10. Not getting a hard money loan that will be sufficient #1 – not getting enough money to finish the

project11. Not getting a hard money loan that will be sufficient #2 – not getting enough time to finish the

project – a 6 month loan instead of a 12 month loan in a slow market12. Not timing the market right or taking too long and missing the spring summer window – that can

cost you in time and money (house is on the market too long and you get low ball offers, taxes, interest payments)

13. Doing too many change orders – it can get costly and slow down the project14. Not being specific enough in your bid15. Accepting a 1 page bid instead of doing a detailed bid16. Not building a time table with charges for being late into the bid 1628







Wholesaling Mistakes1. Not building a buyer’s list so you can actually sell it!2. Not having a formal agreement to get paid3. Not getting the property under contract yourself and then assigning it to

someone else – to make sure you get paid4. Asking for too much or too little – remember your buyers want to buy at

70% minus ARV5. Trying to save money by doing a single close instead of a double close – i.e.

showing how much you’re selling it for to the homeowner and how much you’re buying it for to the end buyer – they may try and cut you out of the deal

6. Not dealing with reputable people7. Not getting estimates for the (scary) repairs that need to be done in

advance8. Not building a Power Team so you can take the house down (i.e. buy it) if

you want to by using a regular loan or hard money lender9. Giving up too earlier – remember it takes time10. Not considering moving up to other strategies that might make you more

money1729





Buying from a Wholesaler Mistakes

1. Not doing your own due diligence - getting your own comps & repair bids

2. Not ask the wholesaler why they are not buying it3. Not knowing/compensating for the Wholesaler Rules: #1

- Wholesalers always overestimate the ARV by 10-15%, #2 - Wholesalers always underestimate the repairs by 20-50%

4. Working with a new wholesaler (no clue)5. Working with an experienced wholesaler (risk-free

profit)





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top investor mistakes€¦ · copyright mmxiii to be or not to be – the realtor decision 1....

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