The 4 Reasons You'll Lose Money On A Real Estate Deal

I’ve been in real estate since I was 18 years old. I’ve made lots of money, and I’ve lost lots of money. Every time I’ve lost money it’s been because of one or more of these 4 things, and we’re going to break those down for you today so you can hopefully avoid making the same mistakes. 

(The last one can creep up on you at the end of a deal, turning a really good deal bad...)

1 - Limited property manager options

Call multiple property managers and ask them if they’d manage the property. If you see a trend of “No”, pass on the deal. Even if you find one that says yes.

This probably means the neighborhood or the property has a worse reputation than you realize, and finding great staffing and tenants will be tough.

For our syndications we only pursue assets where there are property managers beating down our doors wanting to manage the property. This gives us lot of leverage when hiring staffing and it’s a great sign that managers like the area and the property and see good potential there. 

Property managers want to take on easier properties and will shy away from properties that will take lots of work or will cause lots of headache, so their sentiment about a property is a pretty good indicator of how that property will be set up to succeed or fail. 

2 - Remote ownership

If you or a partner can’t visit the property at least monthly, don’t buy the deal. 

Remote owners are the most profitable clients for contractors and property managers. Nothing can replace having eyes on the deal regularly. 

If you’re investing in a syndication then translate this to the sponsorship team. Who is local to the market of the property? For us, having an experienced stakeholder of the investment be local is a mandatory requirement.

The whole team doesn’t have to be local in my opinion, but there has to be a significant stakeholder, meaning the equivalent of a name partner, that is local. 

3 - Hidden money pits.

Real estate is filled with hidden money pits to the untrained eye. Pay for every inspection you can. Scope every pipe & inspect every source of possible leaks. 

Inspect the roofs, HVACs, and water heaters in every unit. When we invest in a syndication the due diligence includes opening every single closet in every single unit and checking on water heaters, checking on HVAC units even if they’re on the roof, and ordering every formal inspection we can.

This is another reason why I really like the syndication structure because there are formal due diligence teams and vendors and it’s worth it to pay good money for professional inspections. 

4 - Not accounting for enough fees. 

One reason real estate is so tax advantaged is because of how much money changes hands when it’s bought and sold. This is important because money moving is critical to our economy but that means you have to account for all these fees: 

Title fees

Broker fees

Lending fees

Transfer taxes

Inspection fees

Pro rated taxes

Recording fees

And plenty more…

So once you look at the sale price of a property and deduct the outstanding mortgage you might see a massive profit, but that profit can get eaten away by fees pretty quickly.

Conclusion

There’s lots of ways to make money in real estate. If you want to skip the growing pains and partner with institutional sized teams that have already paid the price of learning these mistakes, then book a call with us, get yourself on our investor list and lets capitalize this year.