Featured article by Guest Columnist Sterling White
In this post, I’m going to discuss three common mistakes real estate investors make. These are just dumb—for lack of a better word.
Hopefully, by calling your attention to the missteps of others, you can avoid these errors. Here goes.
Not treating landlording as a business.
Yes, landlording is a business. Property management can make or break a deal, meaning that good management can turn a subpar deal into a phenomenal deal. You don’t want to get into a bad deal, but it does occasionally happen. And then bad management can turn a good deal into a bad deal.\
Not trusting the numbers.
The second is trusting numbers. As they say, numbers do not lie. Luckily, I have a partner on my side that is great in terms of underwriting and financial analysis, because that’s not my skillset.
When doing the underwriting, whatever the calculation spits out, that’s exactly what it is. Avoid manipulating and over-appreciating, saying, “OK, I can push up the rents $100 or $200 or more,” in order to make the deal work. That’s when people I’ve seen tend to get in trouble.
Not learning from mistakes.
As simple as that sounds, it does take some reflection to learn from mistakes. For instance, in this 46-unit deal, there were multiple delays on the construction side, which didn’t allow us to get through the upgrades as quickly as we would’ve liked. So, we just took the lessons learned from that construction element and also the pro forma that we provided and applied them to the next deal.
I’m not perfect by any means. I still make mistakes to this day, and I’ve had a lot more failures that I’ve learned from than actual successes. Hopefully by sharing these, I can help you out a little.