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All month long, we’ve been talking about the incredible changes you can experience if you begin to invest in real estate. It has the potential to help you become financially free! If you’re brand new to the world of real estate, start here. If you have debt to get rid of before you begin, start here.

Now, as we close out this mini-series about real estate, I’d like to warn you about what not to do.

I’ve made a lot of mistakes while learning to invest in real estate. And, honestly, making some mistakes is the best way to learn because when the error costs you money, you don’t forget the lesson learned. But it’s my goal to help you learn from my mistakes so that you don’t have to make your own.

Many years ago, I paid a bricklayer before he finished laying the brick because he said he needed the money. The next day he was not at the project site. And he never returned! I had to pay twice to get the job finished. While it seems innocent enough, this is an example of what not to do.


Six Mistakes to Avoid as You Invest in Real Estate


1. Not having contingency clauses in your contracts. 

I hope this is an obvious one, but it is essential to have contingency clauses in all of your contracts. Investopedia says that “a contingency clause defines a condition or action that must be met for a real estate contract to become binding.”

Here are some examples of important contingency clauses:

  •  Financing
  •  Inspection (this always provides an opportunity to re-negotiate)
  •  Approval of partner


2. Over-analyzing details and not pulling the trigger.  

This happens a lot. After all, you’re about to make a huge decision. I understand the apprehension, but I want you to remember what you’ve learned and just do it. If you’ve invested in the right education and sought wise counsel, there is no reason to hang back and doubt yourself.

I recommend two things. Know the formulas and stick to them. It really is that easy!


3. Not setting up bank lines of credit. 

 If you’ve never thought about setting up bank lines of credit, start considering it now. This method is much more flexible than a purchase mortgage when you’re purchasing and repairing a property, like in a fix-and-flip. Do your research and ask lots of questions. Finally, make sure you understand all of the ins-and-outs before signing anything.


4. Paying contractors before they’re finished with the work. 

I know what it feels like to have someone asking for money before a project is finished. Like I mentioned at the beginning, I even gave in and paid someone early. And he bailed! I want to trust people. You want to trust people. But you’re also running a business – and a fairly costly one at that. Home repairs are not cheap, and you want to make sure the repair is done properly before giving any payment. 

I suggest that any payment be tied to whichever government inspection is necessary.


5. When selling, not obtaining from the buyer a pre-approval letter. 

Simply put, as an investor you cannot afford to take your property off of the market for 45 days while you wait for the buyer to be approved. Other pre-approved buyers may want your property! Also, by requiring a pre-approval letter, you tend to weed out any less-than-serious buyers or people who are just looking to look.


6. Failing to prequalify your tenants. 

Finally, it is imperative that you prequalify all possible tenants if you’re planning on renting property. This will save you many headaches down the road. First, require a credit check and don’t be afraid to have strict rules about the potential renter’s credit score.

I also advise that you run a criminal background check, and that you go see where they live. Stop by unannounced and look to see what their lawn, porch, and home look like. Consider smells as well as the look of their current living conditions. All in all, are they taking care of the property the way you want your property to be cared for?


Chances are, you will end up making some mistakes along the way. Don’t despair. We all make mistakes. But I hope this helps you avoid some costly mistakes as you begin to invest in real estate!

P.S. Would you like access to my personal Rental Property Agreement, as well as Property Inspection Checklist and Resident Damage Repair Checklist? These are invaluable resources for the beginner investor! Download them by signing up below!