Every real estate investor makes mistakes, myself included. But you learn from them and ultimately build experience for the next time. On my radio show this week, I asked Brandon Turner, the vice president of marketing and communications at BiggerPockets.com, a real estate investing social network, about some of the biggest mistakes investors make.
“The mistakes that I’ve made are some of the same ones that people are making all the time,” Turner says.
Here are the two biggest mistakes for real estate investors, according to Turner.
1. Renting to family and friends
Turner says this mistake keeps getting him and other investors into trouble. Often, when a friend or family member needs a place to stay, Turner will offer them a short stay in one of his rental properties. But it may be hard to get them to leave and he loses the cash flow in the process.
“It always ends up one or two possibilities: I either have to give in and lose a lot of money or I lose the relationship. So I have generally lost a lot of money and chose to salvage the relationship, but never again,” Turner says.
It’s hard to say “no” to the people you love but saying “yes” could endanger your relationships and your finances.
2. Overvaluing a property
“I looked at a property this morning and it looked amazing…but when I actually sat down and ran the numbers, it was a terrible deal,” Turner says.
A lot of people don’t calculate expenses into the formula when they are looking at cash flow, he says.
“They look at a property and say, ‘Great, it’ll rent at $1,000 a month and the mortgage with taxes is going to be $800, so I can make $200 a month’.” That’s not a realistic scenario. You should factor in all the little things like repairs, vacancies and irresponsible tenants that accidently light the walls on fire.
“If you don’t budget for them, you will end up year after year losing on an investment that’s not really an investment, it’s just a liability,” Turner says.
Buying a property takes money and effort—don’t waste those resources. It’s essential to run the numbers and price out your property as accurately as possible. Learn everything you can about investing in real estate by reading online, attending seminars and connecting with experienced real estate investors. You can hear more of Turner’s advice by listening to the podcast of this week’s radio show.