1. Not setting enough funds aside for marketing which causes the marketing to stop. Understand that marketing is the cornerstone foundation to this business. If you’re not marketing, then your business is dying. The way you find really great deals is having a lot of leads coming in. It’s about processing through a lot of leads. One out of twenty calls that come in will turn into a deal. 19 of them are pure garbage. That means that if you are only looking at two or three properties a month it is going to take you a long time to find a deal. That is why you have to generate a lot of marketing.

You want to have a lot of marketing and keep it going full time. I have quoted this statistic before but I will say it again. It takes 5-7 impressions or times that somebody has seen your marketing before the masses will start to react. Most marketers will stop marketing after they have had 3-4 impressions on their target market. Just when the marketing will start to work most marketers will quit their marketing. The idea is to start your marketing and to never stop it. Then test, tweak, improve it, repeat it over and over again. If you follow that you will have a very successful real estate investing business.

2. Not having the drop dead price in your head before starting to negotiate. You can’t base the selling price on what the seller is asking. You have to know right up front what is the top offer you can make and still make a profit in this deal. You need to have a formula and follow that formula each and every time. I have given that formula out in previous editions but let me give it to you again in case you don’t have it. It is the after repaired value minus the rehab dollars necessary to bring the property up to the level of comparable sales minus your buy sell and hold costs minus the profit that is to be made. If you are wholesaling it remember there is profit for you and your investor buyer. That will give you your maximum profitable offer. That’s the most that you should pay for a house. That’s your drop dead point. Regardless of what the seller is asking that is your drop-dead point. You can not go higher than that. Never ever exceed that number. Then you should be safe in your investing business.

3. The #3 mistake is becoming a motivated buyer. I went through the formula to determine your maximum price but the motivated buyer decides that they need to get a deal and buy a house so they forget their maximum profitable offer and justify why they can pay more for a property. That’s a motivated buyer. What I have found is that a motivated buyer always turns into a motivated seller. Don’t get yourself into that situation. Don’t become a motivated buyer.

4. Not considering cash flow. It is not just about profit and loss but it is about having the cash to be able to sustain you through the entire project in fact throughout your entire life. For instance, you are doing a rehab, the rehab will make X dollars in the end but do you have the dollars it is going to take to get to that point. Let’s say you are getting a hard money loan. You are going to hold that money in escrow. Well that means that you have to have some working capital to be able to get some work done before you can get reimbursed. I have seen investors forget that and then what happens is they run out of cash and then the project stops. When a project stops you are talking about a lot of money being wasted. Never let it stop.

The same thing happens with lease options, the investors don’t think about cash flow. They just think about that positive monthly cash flow. What happens if there is a vacancy? What happens if there is an unexpected repair required? They are under funded and undercapitalized. It means they won’t have enough money to sustain them for the long haul. Or they will look at a deal in the luxury home market and see a large profit margin. It might be a million dollar home with $150,000 in profit. What many investors don’t think about is the monthly mortgage payment that goes along with a million dollar home. You have to have enough cash to hold on to that house and make the monthly payments. The luxury home market has a smaller pool of buyers. It means less chance to be able to sell it. You will make that $150-200,000 if you can stay in the game. Cash flow is critical in this business.

5. The #5 mistake is not having a clear understanding of the customer and the customer’s needs and wants in the property.

• Who is your customer?

• Is it an investor?

• Is it a renter?

• What are they looking for in a property?

• Are they looking for profit?

• Are they looking for amenities?

• Are they looking for price or location

If you are rehabbing the house for an owner occupant you need to understand what they are looking for based on the area that they are in. Otherwise you have done too much or too little rehab which is bad either way because you have either spent too much money in the project or you have made a house that nobody is going to want because there aren’t enough amenities in it.

If you are trying to sell to an investor buyer what are they looking for? Don’t try to sell the house the same way to an investor buyer as you would to an owner occupant. The owner occupant is looking at the lifestyle of the house. The investor buyer is simply looking at the profitability of the property. In looking at the profitability obviously people look at the resale potential of the property. Investors are looking at the profit. Recently I saw somebody advertise a property that was a wholesale deal to investor buyers talking about this beautiful swing in the backyard. What does an investor buyer care about a swing in the backyard? They are not going to sit in that swing and look and contemplate nature. They’re looking at whether there is going to be profit in this deal or not. And that’s what you want to be focusing on. If you are talking about renters then you want to talk about the amount of money that they have to put into a security deposit. How much money they have to have up front and whether they can have pets or not and the schools in the area and anything else that you are offering as an amenity to that piece of property. You must really understand your customer before you get into the deal. Don’t get into the deal and then try to create the customer. The customer is already there. Find the right deal for the customer.