Over the past 5 years, my team and I have specialized in acquiring multifamily communities, acquired net lease assets and now moved into large-scale development. But before that, I was doing single family and small multifamily. I was fortunate enough to have a great mentor in the way of a top selling real estate broker that kept me from making some major mistakes.
Here are 3 that she taught me and still use the lessons learned to this very day:
Number one: Don’t Over Rehab
You want to build out the best flip or rental possible but you still need to temper your expectations. Over-improving a rehab is a very real possibility. Many times, new investors will install upgrades that exceed expectations in the neighborhood to make a house more appealing. Keep in mind that you are rehabbing to sell. This means keeping expenses to a minimum. You want to upgrade the home to the point where it is slightly better than the comparables, but not too much.
Here are some tips: Look at other comparable properties in the neighborhood and try to mimic their improvements and finishes. Look at the type of home home it is and take note of the paint schemes and finishes. Stay true to the neighborhood standard. Finally, select specific features that won’t cost too much for the given area, like a ceiling fan, overhead kitchen lighting or rain showerhead.
Number two: Taking the DIY Approach
New investors sometimes believe they can save more money on a rehab if they do everything on their own. While the do-it-yourself approach seems to make sense, as you are not paying for contractors. This usually ends up costing investors more money and not necessarily for the reasons you may assume. It’s best to leave the work to the pros that do it day in and day out. Consider the time you are investing in a DIY project compared to the cost. It is irresponsible to save $35 on a project if you can earn $55 an hour on doing deals.
Number three: Not Screening Your Tenants Properly
It’s tempting to let potential tenants skip the screening process, especially if you’re desperate to fill a vacant unit. Still, it’s in your best interest to screen properly, even if it means letting the property sit for a few more weeks. This means getting an accurate credit report and making sure you actually READ the results. Try a few tenant screening services and pick the most through one. Not all are the same. Always screen the co-applicant as well. Finally, check all references, get bank statements and verify employment history. If you spot any anomalies, move on.
Becoming a great real estate investor takes time and experience. You will learn new things along the way. A big part of the process in building a great team to lean on. Never make hasty decisions. Rather, consult with your team when you need advice.