1. They don’t market to find their deals or more specifically to locate the leads. They run around looking for and chasing these deals. They follow all those standard cheap or free approaches that you hear about: working with real estate agents, calling the ads in the paper, driving around looking for vacant houses, writing down ugly houses in the neighborhood or target area. These tactics just don’t work. It takes up too much time.

Here is why these methods do not work. Real estate agents don’t work because motivated sellers, which is what we are looking for, don’t typically list their houses. I am not saying that you will never find a house this way, but there is not enough volume. We want to create a business out of this. You won’t find a regular consistent number of leads coming from the MLS. Motivated sellers are overwhelmed and they are not taking a lot of forward action on their own. When they think about having to list their house with a real estate agent the first thing that goes through their mind is I probably can’t afford the real estate commission or I can’t afford to wait until they find me a buyer. I need an answer right now. When I look back at all the deals I have ever done, I would say that less than 5% of the deals came from houses that had ever been listed.

Calling ads in the paper is a common method that is often taught with the idea that if you call enough ads you will eventually find a deal. Well that’s true, but there are hundreds, and thousands and tens of thousands of ads in the paper. And you may go weeks and weeks of calling ads in the paper until you finally find a deal. Again, it is not a volume type answer. And again motivated sellers don’t run ads in the paper. They are overwhelmed and it takes a lot to try to figure out how to sell your house by yourself. It’s not just running the ad, then it’s taking all the phone calls, scheduling the appointments, and then selling the people once they get into the house. Then trying to write up some sort of purchase and sales agreement they have no idea how to do and then how to set up a closing. That is more work than a motivated seller is willing to do. So you don’t find great deals looking at ads in the paper.

You could drive around your target area looking at vacant houses or writing down the ones that don’t seem to be kept up, but again that is an awful amount of work. A lot of effort can go into just finding a few leads only to have it go nowhere. You have to talk to a lot of leads to get a deal. You don’t speak to one motivated seller and get one deal. The ratio is about 20 to 1. By 20 to 1, I am talking about speaking to 20 sellers that have responded to my advertising. That ratio is worse when you are making outbound calls trying to find people. So a lead to me is someone who has seen my advertising and has put up a hand and said yeah I am interested. When you are out there chasing down leads it is much worse. Houses that are for sale, a fsbo, or in the MLS with a realtor are not leads. Those are just simply houses for sale. So if you have to talk to that many leads you want to be sure that the process for doing it is very easy. Otherwise you are going to go crazy trying to find enough leads. Investors that don’t do the marketing and are happy to chase down leads become motivated buyers. In other words they are very anxious to buy a deal so they pay too much for the house and accept a much smaller profit margin. They end up becoming motivated sellers themselves because they bought a bad deal to start with and now they can’t get rid of it.

So what you need to do is use both online and offline marketing to drive deals to you. Do your advertising and have those deals coming to you.

2. Investors don’t brand themselves. In other words they don’t come up with a company name that their customers are going to easily recognize. Every company in every other business I know brands themselves. You want an identity so that your customers can see you differently than your competition. In the real estate world it seems that everybody wants to be "we buy houses" and "I buy houses". That’s crazy, especially when you consider the fact that a consumer that doesn’t have any other means to make a decision will use brand familiarity to choose their vendor. So in other words, this is not just about real estate investing, this is about any market out there, if a customer has no way to discern a difference between one product and another product they use brand recognition to make a decision. Motivated sellers definitely fall into that. They have never ever had to be in this situation before, so they now don’t know how to pick an investor. They go out there and see all these signs I buy houses, we buy houses, sell your house in 5 days, stop foreclosure, but how do they select which one to call. If there is one person who has branded themselves, they’ll stand out against the others. That is the one that the motivated seller is going to call. Shouldn’t that be you? Shouldn’t you brand yourself and separate yourself out from the competition?

3. They waste time looking at houses they are never going to buy. I see investors drive all around town looking at houses listed in the paper or MLS. They look at fifty houses in the course of a month and they think wow look how productive I have been. The chances of buying any of those houses is very slim so you wind up wasting a lot of time. An idea I hear all the time is driving around and looking at preforeclosures and homes that are in foreclosure and knocking on the doors. That is just a methodology that I can’t stand because it is a big waste of time. I hear the teachers of that system saying well if you knock on 50 doors you’ll get one deal. And that deal is going to yield you let’s say $10,000 minimum. Wasn’t it worth your time to knock on 50 doors to make $10,000? When you look at it from that logic I understand it. My point is that there are much easier ways to locate those deals so why would I drive around and look at 50 different houses that I don’t think I want to buy. What I would rather do is have those leads coming to me and have a prequalification process. That’s what you need to do, prequalify your leads. If you are marketing and your leads are coming to you, then from your desk you are able to prequalify those leads and determine whether two things exist: 1. the caller or the owner of the property is actually motivated and 2. whether or not the numbers are actually going to work. If either of those things is not existent, then there is no deal there so why go out and see the house. Remember in this business we want to make it fun. We want to make it easy. And we want to make a lot of money and not waste a lot of our time. We want to be able to take our time in order to go have fun.

4. Investors don’t see their deals through the eyes of the potential buyer. They get so excited with the potential of the deal that they forget to look at it through the eyes of the buyer. For instance, let’s say you are looking at a wholesale deal. If I am looking at a wholesale deal, I might get excited because I got a motivated seller that really wants me to purchase their house and we got into negotiating and I got excited with the whole art of the deal and I negotiated something with them and they said yes and we wrote up the contract. But who is my buyer in this case? My buyer is an investor buyer and what are they looking for? They are looking for significant profit. And perhaps what I did here was follow a basic formula and say ok I put in there $15,000 in profit for my investor buyer so that should be enough. But did you look at the big picture. Maybe this is a $700,000 house. And you are asking them to come to the table with $700,000 and then do another $10,000 worth of renovation and they are going to make $15,000. That just doesn’t make sense. From their standpoint they are not going to want it. Let’s change it a little bit. Let’s say you are purchasing the property and you are going to sell it to an owner occupant. They are going to move in. Now are you looking at it from that person’s point of view? Are they going to want this house? Does it meet what a family is going to look for? For instance, are the bedrooms large enough? How does the yard look? Would a family be comfortable living here? If you are only looking at the potential profit of the deal, but not at whether your family would be happy living there then you are going to make a mistake. Common ones I have seen are the bedrooms being too small, the layout not working, or not a great surrounding area. You can’t just look at the numbers. You have to consider your potential buyers and what they will be looking at when they see the house. The best suggestion I have for this is just step back a moment when you are looking at a potential property and look at it through the eyes of a buyer. What are they going to see and how big of an issue is that going to be to them? Can that issue be overcome by price or more renovation? If so, have you allocated that into your formula so that you are buying at the right price to make a profit?

5. They don’t have a plan for any part of their business. A 4-6 month marketing plan should be laid out. It should include the type of marketing, when it will go out, how it’s going to be done, and how much is in the marketing budget.

Many investors don’t plan out their rehabs. They don’t look at the property they are about to rehab and decide exactly what they are going to do and figure out how much it’s going to cost. They don’t really have a financing plan so they don’t know where the money is going to come from to do a deal. They just figure they will get the money from somewhere. Since they haven’t planned out the rehab, they are unsure of how much it will cost and usually run out of money. Now they have to cut back on the renovation. This then hurts the sale of the house because the most common things to be cut from a renovation is all the "extras", or the stuff that the customer actually sees. All of these problems come simply from a lack of planning in the beginning.

Always have a plan B. You want to know that if your financing doesn’t work out you have somebody else that you can go to. If you wind up needing more money for this project, there’s another source. I tell investors all the time not to tie up their own personal cash and credit in rehabs. Save those for rainy days in case something goes wrong. When you plan ahead and you also have a plan B, there are very few surprises that are going to come up in your business. And when they do come up, you already have it taken care of. Otherwise it is very very difficult.

6. They don’t study and know the marketplace. In other words they don’t try to really find out what is going on in the market. What’s selling, what’s not? What’s a hot area, what’s not? Is it a buyer’s market or is it a seller’s market? You can make money in either type of market, but as an investor you need to know which market you are in so that you know how to structure your deals. You have to understand what your buyers are looking for. What price range are they looking for? What amenities are they looking for inside the house? If you know all of this information, you will know exactly what to deliver your buyers.

If you are going to renovate a property the best way to be sure that your house is sold first is to give the best price and amenities. Make sure your house is priced properly for the marketplace it is in, and that you have the right amenities as compared to the other houses on the market. You have to go and see the other houses on the market. You have to know what’s happening. What are the buyers looking for? What kind of buyers are coming in here? Are these second time homebuyers or first time home buyers? Are these people more selective about their house or less selective? Even if you are wholesaling it is the same idea. You have to understand the marketplace you are in and if it is hot or not because your investor buyers are going to be doing that same homework. So why would you want to be marketing in an area where nobody wants to be in? Make sure you are out studying the marketplace and know what other investors are doing, what other homeowners are doing, and what your buyers and other sellers are looking for.

7. They do not consider cash flow. Cash flow is the flow of cash in and out of your business. You have to consider if you have enough cash to cover all your expenses and fund your projects. When you are deciding how and when to spend money you must consider your cash flow. With marketing you want to figure out where you will get the biggest bang for your buck. For instance if you spend $10,000 on marketing and it brings in 2 deals a year, then logically that was worth it. But you also have to look at where else you could have spent that $10,000. Maybe $10,000 on one type of marketing brought in two deals, but perhaps you could have spent that $10,000 somewhere else and brought in 10 deals. The other thing to consider is when the profit from those deals will come in. That is cash flow. You may not be able to afford to spend the whole $10,000 upfront and wait on the profit from the deals to come in. You have to look at when your money will come in.

Another place that money can get tied up is in rehabs. You may have enough money at the beginning of the project, but what if it takes longer than anticipated or goes over budget? Repair escrows, which is where the lenders holds the funds until the repairs are complete, often cause problems for rehabbers. Many times the rehabber forgets that they need other funds to cover the rehab cost until they can complete the work and get reimbursed by the lender.

Another place cash flow plays a major role is when you are thinking about a rental and lease option portfolio. Lease options are really just hybrid rentals because most tenant buyers don’t execute their option to purchase. They are long term hold properties and belong in your rental portfolio. You need to consider how many rentals you have and think through the vacancy rates you might have on these properties and the maintenance and repair that are going to be needed. This is where many investors get themselves in trouble. They buy up a bunch of lease option and rental properties and then maybe 12 months later they have a whole bunch of vacancies or they have a whole bunch of major repairs that need to be done to these properties and suddenly they are out of cash. I recommend that investors do not get into the buy and hold until they have significant cash flow coming into their business.

Another place where cash flow can get tied up is in buying higher priced homes. Let’s say you are able to pick up a million dollar house for $700,000 and it needs $100,000 in rehab so you should profit $200,000. Sounds great, but you have to also consider what it is going to take to hold onto that house and how many buyers you will have in that price range. It will probably be fewer than what you would have in a lower price range which means you will have to hold the house for a longer amount of time. Not a problem as long as your cash flow permits you to hold the property. You just need to make sure you plan ahead.

8. They don’t know the maximum price to pay for a house. You must start with the end in mind and know your exit strategy before you start negotiating. You need to think about whether you are going to wholesale it, rehab it, or hold it as a rental. Whatever the exit strategy is you need to know that up front. When you start negotiating you will have that in mind so that you can make sure to leave enough profit in the deal, budget for renovation costs, or have enough equity to make the deal attractive. You have to always think ahead and then determine the right price to pay. The way to do that is to have a formula. You have to have formulas for your profits and for your different exit strategies. Before you get involved in negotiations you determine what your maximum offer price is. In other words, that price needs to be the deal breaker. If you don’t know what your drop dead price is before you start negotiating, it is easy to get caught up in the moment and go over that price.

Don’t fall into the same trap I see so many investors get into which is that they let the seller decide the price. They let the seller name a price and then try to work down from that number. The way I look at it is I don’t really care what the seller is asking for. I only care about what I can pay for the property. You want to work from your price not theirs. They might say the market price is $150,000 and are willing to sell it to you for $130,000. That shouldn’t mean anything to you. All you should care about is what you can pay for the property. Let’s say that amount is $100,000, then you should work from your $100,000. Obviously the seller is going to keep trying to work you up, but you already know that you have to be down there at $100,000 not the $130,000. So many investors think they got a good deal if they can get the seller to come off their asking price. It’s a good deal if you are buying as an owner occupant but not when you are buying as an investor. As an investment, you must look at properties from a completely different perspective. You only want to purchase the property if in fact there is a profit in it. You have to figure out what number you have to purchase the property at in order to make a profit and that is where you negotiate from. So know the maximum price for the property prior to even starting your negotiations. And don’t work off of what the seller is asking for, rather work from your maximum offer price.

These were eight of the most common mistakes I see real estate investors make. The bad news is they can be very costly. The good news is that none of these are really difficult to resolve. It’s just a matter of thinking ahead and planning, and not jumping into deals simply for the sake of doing the deal. If you just take a step back and think through your business and plan it out, most of these mistakes will be gone just from that simple step. Think of this as a business not as a hobby. Don’t look for the homeruns every time. Look for the base hits. Just keep making the base hits. If you do that and you have your singles and doubles eventually you are going to hit the grand slam and get rich. Don’t try to do that right off the bat. If you avoid these mistakes I guarantee you are going to be successful.