Caution: Another Real Estate Investing Mistake That Could Cost You Big Bucks

August 11, 2008 | By | 2 Replies More

Real Estate Investing Mistake to AviodWhether you’re a seasoned real estate investing pro or brand new to the game, this mistake can jump up and bite you.

Here are a couple scenarios where caution should be taken:

Let’s say you contract a vacant property and negotiate a long closing period. You know that it’ s a good deal, you’ve done your due diligence, and the closing is set for two weeks out. The stage has been set. You’ve got your renovation plan together, and your contractors are ready to get started. Have you ever bought the materials for a job, got a dumpster delivered to a property, and started working on a property prior to closing? If not, have you ever considered it?

Prior to joining our coaching program, one of our students negotiated a long closing period on a property to allow him to rehab it prior to closing. He planned to finance it in a way where the appraised value could be used for the loan instead of his low purchase price (typically with traditional bank financing, a loan is written for the purchase price or the appraised value, whichever is lower). The only problem, what if the seller changes his mind in the interim. You may be saying to yourself, “But the seller signed a contract. They are contractually obligated to sell the property.” If so, let this be your warning. You may be positioning yourself for a big fat headache that could cost you dearly.

Never spend money in a property prior to closing on it!

First let me give a small disclaimer. This does not include any costs spent marketing the property prior to closing. Some investor’s entire strategy is to contract properties and market them to other investors. They may spend money on signs, newspaper ads, or much more depending on their business plan.

When I say never spend money, I mean never start rehabbing a property prior to closing. That’s the mistake you want to avoid. Everything could work out fine, but you don’t ever want to end up in front of a judge as a real estateinvestor. Sellers can paint the “poor little me, big bad investor” picture. Not where you want to be.

This game is about making big money as a real estate investor and protecting yourself in the process. To do so, save yourself some trouble by taking these words of wisdom.

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Category: Tips and Tricks

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  1. Tage says:

    Has this ever happened to you? Seems like you know from experience, would be interesting to hear a first hand experience story. Good tip though, seems like there are too many “Ifs” for my liking.

  2. Patrick Riddle says:

    We are fortunate to have learned this one prior to making this mistake ourselves. I just like for investors to understand that just because you have a seller under contract, it doesn’t mean you’re in the clear yet.