Want to Avoid BIG Real Estate Mistakes? Listen UP!
Welcome back to another segment of our Real Estate Quick tip series.
I don’t think there is one real estate investor that hasn’t made at least a few mistakes in the process of buying investment properties…regardless of how experienced they are. I’m sure even the world’s richest tycoons have had their share of “OOOPS” moment!
There’s a lot of moving parts in real estate, and things can go differently than expected.
So how do we make as few real estate mistakes as possible?
Well one way to avoid real estate mistakes is to search out other people’s lessons learned and make sure you apply them to help ensure you don’t make the same mistakes.
I believe that the best lessons learned are from your own mistakes. But we should all heed the advice of others to ensure we don’t go down the erroneous paths they did.
So here are two tips. Don’t make these real estate mistakes.
DON’T take pro forma financials at face value.
Pro forma numbers are estimated numbers the seller provides to show you what returns the property COULD make should you get full occupancy and after you make some improvements. They want to paint the picture brighter than it currently is to get maximum price for it.
Run your own numbers and perform an exhaustive underwriting exercise.
You should only be buying a property based on what it makes right NOW…not on what it could make in the future. Today we are experiencing tightening markets so it’s harder to get those CAP rates that investors get excited about. As a result sellers’ brokers are using pro forma numbers more aggressively. My partner Marc throws away most opportunities because the asking price does not reflect the property’s current numbers. As a result the numbers aren’t there for a viable investment. It’s take a lot of duds to find the winner.
This leads me into the second lesson learned, which ties into the one I just spoke about.
NEVER overpay for a property
Keep performing your stringent underwriting exercises and you will come across properties that will work. Until then…sit tight. Don’t use your intense and growing desire to do a deal cloud your judgement and buy something that is overpriced. Unless you are a magical fortune teller that can read the future, don’t buy a property based on futuristic numbers. If you overpay for a property you will have a hard time getting the returns you were counting on.
To find out more great do and don’ts of real estate investing check out the first of a two part blog series. Smart investors do their homework and learn from others, to help them avoid real estate mistakes.