The Biggest Mistake Real Estate Investors Make
Categories: Blog Posts
Today we are going to discuss the biggest mistake real estate investors make! Real estate investing can be rewarding, however it also comes with challenges. One of the biggest mistakes investors make is not being “money ready.” To clarify, this lack of preparation can lead to delays, added costs, as well as a reductions in profits. Let’s break this down and look at examples in order to understand why being money ready is essential.
What Does “Money Ready” Mean?
Being money ready means having enough funds available to cover the full scope of a project. This includes:
- Purchase price
- Rehab costs
- Carry costs (taxes, insurance, interest payments)
- Unexpected expenses
It’s not just about having cash in the bank. You need accessible funds like credit lines, reliable backup resources, or supportive partners.
The Tale of Two Investors
Here’s a real-world example of how being money ready can either make or break a project.
Investor #1: Money Ready and Profitable
Investor #1 planned their project meticulously:
- ARV (After Repair Value): $400,000
- Expected Profit: 15% or $60,000
- Timeline: 6 months, from purchase to sale
They encountered an unexpected $7,500 expense during the rehab (such as old wiring or plumbing behind a wall). Because they had funds readily available, they handled the issue immediately as well as kept their contractors on schedule. As a result, they finished the project a month early, saving additional carry costs.
- Final Profit: $55,000
- Project Duration: 5 months
Investor #2: Unprepared and Stressed
Investor #2 started with the same expectations but wasn’t money ready. When the same $7,500 unexpected expense came up, they had to scramble for funding. This delay caused:
- Contractors to move on to other jobs, creating scheduling issues.
- A project timeline extension of 4 additional months.
- Extra carry costs of $12,000 ($3,000 per month for taxes, insurance, and interest).
To make matters worse, the slower timeline also pushed the project into a weaker selling season. They had to drop their price by 5% ($20,000) to attract a buyer. Additionally, their lender charged a $5,000 extension fee for going beyond the loan’s 9-month term.
- Final Profit: $15,000
- Project Duration: 10 months
Why Money Readiness Matters
Delays as well as unexpected costs are common in real estate investing. Without enough funds to handle surprises, you risk:
- Missing optimal market windows (like spring or fall selling seasons).
- Losing profits to prolonged carry costs and price drops.
- Increased stress from juggling financing and contractor schedules.
How to Get Money Ready
To avoid these pitfalls, aim to have 20-40% of the total project budget available in accessible funds. These funds can come from:
- Savings
- Lines of credit
- Credit cards (used strategically)
- Supportive partners
For example, if your project’s total budget is $300,000, plan to have $60,000 to $120,000 in accessible funds. This cushion ensures you’re prepared for any hiccups without derailing the project.
The Cost of Not Being Ready
Let’s revisit Investor #2’s project:
- Unexpected Expense: $7,500
- Additional Carry Costs: $12,000 (4 extra months)
- Price Drop: $20,000 (5% of $400,000)
- Extension Fee: $5,000
Their original $60,000 profit dwindled to just $15,000, a $45,000 difference. Meanwhile, Investor #1 stayed on track, kept stress low, and moved on to their next profitable deal.
Speed Is the Name of the Game
In real estate, speed matters. The faster you:
- Close on a property, the better your deal.
- Complete the rehab, the more you save on carry costs.
- Sell in the right market window, the higher your profits.
But speed is only possible when you’re money ready.
Don’t Make This Mistake
Being money ready sets successful investors apart from those who struggle. If you want to avoid this common mistake, take the time to plan your funding properly. It’s the key to:
- Keeping stress low
- Maximizing profits
- Growing your real estate business
Make sure you have the resources you need to handle surprises. That preparation will keep you on track, no matter what challenges arise.
Contact us today to learn more about the biggest mistake real estate investors make!
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