I don’t need to tell you that there’s a TON of information out there about how to be
successful in real estate investment. But for every article you read that tells you to do A,
there’s another article that reads “NEVER do A! If you want to be successful, do B!”
With all the advice, it can be a challenge to come up with a sound investment strategy.
You might think you’re doing all the right things, but in truth some of your beliefs,
approaches, and strategies might be costing you money.
Here are three mistakes that are costing you your best real estate deals:
The BIGGEST mistake that holds people back – and costs them their best deals – is
disbelieving that there’s deals out there in the first place.
I have so many people come to me and say, “There’s just no good deals out there!” To
which I say, “Then how did I just buy a house for $1,000?”
Deals are out there, whether you believe they exist or you don’t. Just be aware that
believing there’s no great deals out there is only going to stand in the way of you finding
Have you ever found yourself thinking, “There’s no way I’ll ever find a deal… I’m going
up against all the pros”? If so, it’s time to shift your mindset, because it’s holding you
back. There’s a ton of opportunities out there – you just need to find a motivated seller.
So, for example, let’s say John lives in Texas and inherits his uncle’s house in Virginia.
The house is a little run down, but it’s in pretty good shape. John flies out, takes care of
a few things, but he’s a busy guy, and it’s another year before he can fly back out.
This time around, there’s a leak in the roof and it’s a costly fix. Then, John has a baby on
the way, so it’s another two years before he makes it back to Virginia, and by the time he
gets back there’s a whole new batch of problems, and the roof is leaking again.
It’s a headache and a hassle that John doesn’t want to deal with, so when a realtor
approaches him and says, “I’ll give you $40,000 for the house,” John sells because he
just wants to get rid of the house and the hassle that comes along with it.
The realtor fixes the roof, puts some new paint on the house, fixes a few odds and ends,
and sells it for $120,000. John’s happy because he just wanted to get rid of this extra
headache in his life, and the realtor’s happy because they made a huge profit off a
Motivated sellers are the key to finding deals. They might be someone like John, or
someone like a woman I met recently. She had been smoking inside her house for
nearly 25 years, and the smell was HORRIBLE. She didn’t know how to get rid of the
smoke smell and couldn’t sell the property. So I bought the property for $95,000, and we
repainted it, replaced all the ductwork, and cleaned out the HVAC. I put about $15,000
into it, and it’s worth about $165,000 now.
Finding a motivated seller who’s ready to get their property off their hands yesterday is
the key to finding a great deal. Seller motivation isn’t something that most people
understand right away, but it can definitely be taught. They’re out there – you just have
to find them.
Buying From the MLS
Now, don’t get me wrong – if you’re looking for the house that you’re going to live in, the
MLS is great. It’s super convenient. But remember – thousands of eyes are seeing that
deal, and only one person is going to get the property by paying the highest amount.
If you’re purchasing your own home, that’s fine. But when it comes to investment
properties, it’s not worth it.
Buying investment properties from the MLS is a mistake. When you purchase from the
MLS, you’re purchasing at the top of the market, and then the property appreciates or it
doesn’t. There’s no built-in equity.
The MLS isn’t the place to look for homes to flip or rehab. You’re just not doing the right
deals here. There was a period of time when we were finding decent deals on the MLS,
but that is over.
The MLS is for sellers, NOT for buyers. It’s a place to list your property and make a
profit, not buy a property and hope to make a profit.
Buying in Nice Neighborhoods
Another big mistake I see people making, probably as a direct result of watching all
those home makeover shows, is buying investment properties in nice neighborhoods.
Now, again, if you’re buying a house that you’re going to live in, of course you’ll want to
buy it in a nice neighborhood. But if you’re buying an investment property, it’s going to
end up costing you a good deal.
There’s four classes of neighborhoods:
• A Neighborhoods: These are the neighborhoods that everyone wants to live in,
with $500,000 properties and above. They are the neighborhoods where the elite
and wealthy live.
• B Neighborhoods: These neighborhoods fall somewhere in the $150,000 –
$300,000 range (depending on the area). They are middle-class neighborhoods.
• C Neighborhoods: These are the working-class neighborhoods that are a little
rougher around the edges.
• D Neighborhoods: These neighborhoods are high-crime, usually urban areas.
They’re tough neighborhoods, to say the least.
Most people fall into the emotional trap of wanting to invest in the type of house they’d
want to live in. But the most money is going to be made in C and D class neighborhoods.
That’s where the renters are, and that’s where you’re going to find people willing to pay
$1,200 a month for a three-bedroom house.
There’s a lot of conflicting information out there about what you should and shouldn’t do
when it comes to investing in real estate, but one thing is for sure: these three mistakes,
without fail, will cost you your best deals.