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My 7 Biggest Real Estate Mistakes And How You Can Avoid Them

Real Estate has the unique ability to give you financial freedom in a relatively short amount of time. Fortunately, real estate also helps correct mistakes over time, through cash flow and appreciation.

When I first “burned the boats”, left Corporate America and jumped, headfirst into real estate, a lot of my Silicon Valley buddies wanted to invest in our business. I told them to hold off. I wanted to screw up, learn how to fix my mistakes, and only then, would I begin to include my friends in our deals.

As expected, I missed a lot of basic things when we first got started. The good news, our team here at Clark St now knows how to fix or completely avoid those mistakes.

1. I Tried Doing It All By Myself

As a business owner, your time is by far your most valuable asset. Time is our only truly finite resource. When it’s gone, that’s it.

If you’ve read any of my articles or seen me speak, you know I’m all about “Highest and Best Use”. It’s not that you can’t swing a hammer or push a paintbrush, but is that the best use of your time? Could you be doing something that’s even more valuable to the business? Could you pay someone else, who is better and faster than you?

Key Lesson Learned…By investing in good contractors, I was able to free my time up to focus on finding new deals, raising capital, and growing Clark St.

2. We Hired The Cheapest Labor

I am notoriously cheap…ahem frugal. It’s the Scotsman / Connecticut Yankee in me, I guess. It’s probably why I spent so many years in corporate sourcing and procurement. I like making money. I love saving money.

However, that instinct was exactly the wrong way to think about hiring contractors. I’ve hired (and fired) my unfair share of them. I found the cheapest contractors tended to cost me more because I had to pay someone else to fix or redo their work. They were nearly always late and over budget.

Key Lesson Learned…It’s better to hire the right contractor for the job, even if it costs you a little bit more. You will deliver your projects on time and on budget, which will get your flip or rental to market faster and more predictably.

3. We Underestimated Our Time Frame

New investors get excited about their first project. I certainly know I did. That excitement typically causes investors to underestimate how long a project will take.

Whether you are working on a single-family flip or multi-family rental, understanding your timeline will help you accurately plan your carrying and construction costs.

We learned to track our project time. This put us in a position to validate our time estimates with our prospective contractors. It enabled our team to figure out how long a project should take. It also helped our team hold our contractors accountable.

Key Lesson Learned…Track your time and understand how long each project component takes to complete. Make sure you understand, before closing on the deal, the length of time your project will take so you know how much money you’ll need to carry the property while work is completed.

4. We Over Estimated Our After Rehab Value

The adrenaline burst of your first (or next) project can cause you to make incorrect assumptions. When you’re excited about a project, you think your “finishing touches” will overcome the marketplace and you’ll be able to sell your flip or rent your apartment units for more money than the neighborhood typically supports. Whoops!

Key Lesson Learned…Better to work with your realtor, contractor, or property manager to understand the market. Then, deliver a clean and safe home for your customer (buyer or renter) that meets or slightly exceeds their expectations.

5. We Underestimated Our Rehab Budget

That same adrenaline burst will push you like a little devil on your shoulder to cut down your estimated costs to make your deal math work.

You may think, “I can shave off budget here and a little there to make my numbers work.” Don’t do it. Resist that urge if you want to succeed.

Instead, get real. Walk your trusted contractor(s) through the property. Tell them what you want to do and get them to, at least, give you a ballpark of their costs.

Better still…get formal bids. Do this BEFORE you close. As you gain more experience, you will be able to build accurate estimates on your own. Get 3–5 projects under your belt before you try doing this on your own. We’ve flipped just short of 100 houses and purchased as nearly many multi-family rental units and we still walk our team through the property before closing.

Key Lesson Learned…Better to pass on a deal, than try to shoehorn numbers into your buying criteria. Remember, we’re in the arithmetic business. If market data, your realtor or contractor are telling something counter to your estimates, listen. Don’t go searching for information to prove you’re right. Confirmation bias is dangerous in this business. Instead, listen to your team and be conservative. If you hired well, they will guide you to making informed decisions as you build your real estate business.

6. We Didn’t Adequately Plan For Curveballs

Of all the properties purchased over the, exactly 100% of them threw us a curveball. There was a surprise. Mold, a bad septic system, bad wiring, leaky plumbing…there’s always something. Every. Single. Time.

The way to address these issues is by a) doing a solid inspection and b) including a contingency in all of our projects, whether a single-family rehab or a multi-family buy and hold.

Every. Single. One.

The contingency should range from 5% to 10% (or more) of your overall project budget. This should provide you with enough of a financial cushion when that surprise (or set of surprises) strikes.

You will be surprised. Guaranteed.

Key Lesson Learned…Plan for mushroom clouds on the horizon. Be pleasantly surprised when they don’t appear or turn out to be a small, easily solved issue.

7. I Waited Until I Was 40

Launching Clark St Properties and Clark St Homes were the best financial decisions I ever made. Sure, we’ve had our fair share of bumps in the road. My only real regret is the time I lost by not starting full-time immediately after reading Rich Dad, Poor Dad…in 2008.

Key Lesson Learned…The best time to start your real estate investing career was 10+ years ago. The second-best time to launch your investing career is right now.

We’ve made our fair share of mistakes. But we’ve embraced them and learned from each one. We’ve done our best not to make the same mistake twice. We’re, also, consistently working ON the business to make Clark St more efficient, every day.

We’ve built a talented team and recruited some amazing partners. I am unbelievably grateful for the experience and the amazing people I’ve met along this journey.

Happy Investing!

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About CTREIA

CTREIA is the largest real estate investors & apartment owners association in the Northeast. We provide motivation, networking, funding, insurance, and coaching for investors in Connecticut and throughout the US.

If you are interested in learning more about becoming a CTREIA member or are interested in learning how to become a real estate investor, go to CTREIACoaching.com. If you’re interested in funding your deals, go to CTREIAFunding.com. If you’re interested in protecting your assets, go to CTREIAInsurance.com.

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Dad, Husband, Coach, ‘Nova BBall fanatic w/an addiction to real estate. Founder @ Clark St Holdings & Co-Host of The Real Estate Underground podcast.

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Ed Mathews

Ed Mathews

Dad, Husband, Coach, ‘Nova BBall fanatic w/an addiction to real estate. Founder @ Clark St Holdings & Co-Host of The Real Estate Underground podcast.

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