9 Mistakes New Real Estate Investors Make

Not Knowing the Market Numbers

Knowing your market is as important as any other factor in real estate investing. This means having a neighborhood by neighborhood analysis of the supply curve and average days on market. Both of these data formulas can be found through the assitance of a real estate broker using the MLS.

Mistaken Value

Most new investors use Zillow, e-appraisal, or Trulia (or even worse, an average of the three) for determining the value of a property. This is fatal – learn to do a “comparable sales” analysis.

Get your own data, too. Relying on the listing broker to give you comps for properties is like asking the barber, “How’s the haircut?”. Learn to find your own comps using public data websites like Trulia.com.

Underestimating Repairs

If you have no experience in rehabbing homes, then you shouldn’t be estimating repairs yourself. Get at least 3 difference contractors to give you bids. Get these bids in writing, with detailed breakdowns of labor and materials.

Poor Choice of Contractor

A bad contract won’t have a license, will bill you by the hour, and/or won’t work by a written contract drawn by you. A good contractor agreement is essential, have a local attorney draw one up for you. Make sure you get signed lien releases every time you write a check.

Bad Contract

Most real estate courses have crappy contracts because they are not written by attorneys. My advice is to learn your local Realtor form and draw up a few addendums. An attorney can help you with this.

Wrong Legal Entity

Most investors form an LLC for their investing practices. Is this right? Maybe, maybe not. There any many tax issues involved in choosing an entity that should be review with a tax professional, NOT just an attorney (unless the attorney in question has tax knowledge, like me!).

No Marketing Plan

Most investors hire a real estate agent to find them deals and that’s it. There’s not enough good deals on the MLS to make a living on so you need a better plan to market to FSBOs, foreclosures, estates, divorces, and other sources of motivated sellers.

No Script

OK, so got a motivated seller on the phone and now what? Uh, uh, uh – what questions do you ask? Have a written script you keep by the phone so you always know what to say.

No Business Plan

If you fail to plan, you plan to fail. You’ve heard that before, but how many investors actually write a business plan? The truth is very few. Take some time to write a good, detailed business plan that you can follow as your goal.

That’s 9, but I can think of at least 100 more. Don’t make mistakes, get a mentor on your team to guide you through the process.

7 Real Estate Contract Buyer Clauses Checklist

One of the most important part of real estate investing is the Real Estate Purchase Contract. The following is a seven-point checklist for items that investors should include in their purchase contract when they are buying real estate investment property. Some of these clauses may be found in some form or another in the “standard” real estate contract which is used in your area.

7 Real Estate Contract Buyer Clauses Checklist

“And/or assigns” or “and/or Nominees.” As the buyer, you want to have the right to assign your contract. By placing your name with the words, “and/or assigns,” you don’t automatically give yourself that right; you also must find anything in the contract that says you CAN’T assign and cross that out. The words, “and/or nominees” is not as broad, but it has been interpreted as giving the buyer the right to place title in the name of a trust or corporate entity. We buy houses Fort Lauderdale.

Inclusions and Exclusions. Most real estate contracts have a clause which specifies what personal property is included in or excluded from the sale. Sellers and buyers often forget to specify certain items, which leads to arguments at closing. As the buyer, you would prefer the clause, “anything not specifically excluded will be included, whether or not affixed to the property or structures.”

Earnest Money. As the buyer, your preference is, “to be held in escrow by escrow agent or title company of buyer’s choice.” NEVER let the seller hold the escrow himself.

Closing. As the buyer, insist on the right to choose the title or escrow company so that you remain in control. Also, you want the ability to have as much time as necessary to close. Most contracts call for a date certain for closing. If the buyer is not ready to close, the seller can hold him in default. Here are some tips for buying time:

  • Make the closing date “on or about” June 1st. What does “on or about” mean? I’m not sure, but it certainly means LATER than June 1st!
  • Have the right to extend the closing date if it is not your fault: “Said date may be extended an additional fifteen (15) days if lender requires additional documentation, paperwork or actions from the buyer and said delay is not due to the fault of the buyer.”
  • Have the right to extend for thirty days by paying the seller the equivalent of one month’s mortgage payment.
  • Have right to choose the title company. A friendly title company (friendly to you, that is) can create an “unexpected” scheduling conflict if you need it.

Possession. As the buyer, you want possession of the property concurrent with closing. If the sellers are living there, make sure that you have the right to charge them a hefty per diem rent. Also, the contract should state that the property be left “broom clean and free from all debris.”

Warranties. As the buyer, you may want the seller to warrant some of the items included in the sale, such as, “seller warrants that the appliances, roof, plumbing, heating, and ventilation systems are in good and working order at time of closing. This clause shall survive closing of title.”

Who Can I Sell My House to for Cash

“Weasel” Clauses. A buyer wants as many contingencies or “weasel” clauses as possible. If the buyer can get out of a contract without breaching, he gets his earnest money back. My philosophy is that the less earnest money you put up, the less you need a weasel clause. If you do need a few, here are my favorites:

  • “This agreement is subject to inspection and approval of the property by the buyer in writing prior to _.”
  • “This agreement is subject to attorney approval within 72 hours”
  • “This agreement is subject to satisfactory appraisal by buyer or buyer’s agent”