Tyler's Mistake of the Month Newsletter
Monthly Solutions FOr Real Estate Investors
Vol.1 Issue 1
The Real Cost of Overpaying For Properties
How It Happens…
‘The number one fear of real estate investors is losing money…
If you're anything link me, the fear of losing money has held me back over the years. Such fear can lead to making lowball offers that are rejected or worse, prevent you from making offers at all. Below I will break down “how” specifically overpaying happens and then provide you with solutions on how to fix this problem for the future.
Overestimating the potential value of a property:
Over the last decade or two, middlemen commonly referred to as “wholesalers have entered the real estate space sliding in between sellers and buyers in a fashion similar to Realtors. The difference is that wholesalers negotiate directly with the seller to buy the home, later placing it under contract on behalf of a buyer that have not yet met.
As you might imagine, trying to shop for a total stranger often becomes a challenge when you are not 100% confident in what your buyer wants or what they are willing to pay.
What's more is
With rentals, its common to omit expenses that you don’t feel you will have. A common one is electricity. If the unit goes vacant you will be paying the power bill until it is rented once again. The same is true for gas, water and trash pickup.
Underestimating the cost of specific expenses is also common, this happens when the owner assumes the costs instead of calling to find out exactly what their costs will be. Underestimating insurance costs is one of the most common.
Accepting the “pro forma” projections provided to you by a seller or real estate agent is also a common mistake that leads to overpaying for properties. Sellers often overestimate future rents and underestimate repair costs leaving the end buyer holding the bag and therefore bleeding money every month.