The 10 Biggest Mistakes New Multifamily Investors Make
Zig Ziglar once said, “Some of us learn from other people’s mistakes, and the rest of us have to be other people.” The wisdom there is simple, yet profound: you don’t have to repeat other people’s mistakes. In fact, you’d be crazy to.
In my 40 years as a real estate investor, educator and coach, I’ve seen just about every mistake you can make in this business. I’ve even made a few of them myself.
In this post, I want to share 10 of the biggest mistakes I see new multifamily investors make over and over again:
Going it Alone
Multifamily investing is a team sport. To find properties, you need brokers. To finance deals, you need lenders.
To navigate contracts and closing documents, you need attorneys. To avoid mistakes, you need mentors. If you try to tackle any (or all) of it on your own, it could cost you dearly.
Waiting to Raise Money
New investors often make the mistake of finding the deal before the funds. By the time they line up their cash and/or financing, the contract’s up or the property’s gone. Save yourself the heartbreak; line up partners and lenders before you go looking for a property.
Moving Too Slow
Nervous investors wait too long to pull the trigger on a deal. Either they’re afraid to make a mistake, or they’re not sure what they’re looking for. Successful investors avoid both mental blocks by honing their search criteria and disciplining themselves to act on opportunities as soon as they present themselves.
Moving Too Fast
Other investors make the opposite mistake. Instead of moving too slow, they rush through the deal—cutting corners, skipping due diligence, and making mistakes that end up costing them tens of thousands. In contrast, veteran investors learn to operate with cheetah speed: fast, not foolish.
Buying the Wrong Property
Some new investors get into the business with a clear desire for success, but a muddy vision for how to get there. They want to buy properties, but they have no idea which ones. So, they grab at the first “good deal” that strikes their eye but end up with a property they can’t handle. To succeed in this business, you need to know what you’re looking for before you start searching. Otherwise, you’ll have no way of knowing a good deal from a bad one.
Trying to Predict the Future
To win in multifamily investing, you have to check your single-family mentality at the door. Multifamilies are about income, not appreciation. When single-family-minded investors start looking to buy low and sell high, they completely upend everything that’s good, true, and beautiful about multi-family investing.
Gambling on Cash Flow
Buying a property with negative cash flow is risky. Even if you’ve got the operating capital to sustain your debt service, things can flip upside down in a hurry—especially, if you’re new to the business. Beginners, be warned: don’t bet on future cash flow.
Ignoring the Law
Every state and municipality has its own particular set of laws governing relationships between landlords and their tenants. New multifamily investors can get themselves in trouble when they inadvertently break laws they never took the time to understand. You can’t plead ignorance in court, especially when there are plenty of resources out there to help you get up to speed.
Hiring the Wrong Property Manager
I know from personal experience that even a veteran investor can slip up and hire the wrong manager. I survived, but new investors aren’t often so lucky. Take the time to properly vet a property manager before you give them your business.
Not Reading Leases
Rookie investors often make the mistake of taking on existing leases without reading them over. They just assume that, if it worked for the previous owner, it’ll work for them. Nothing could be further from the truth. Take the time to look over every existing lease agreement with your attorney and/or property manager. Skip this step and you might inherit terms and concessions that cost you your profit and your sanity.
Those are the 10 biggest mistakes I’ve seen. I haven’t shared them as a way to scare you off from multifamily investment. Instead, I want to help you learn from others who’ve gone before you. Bad experiences are master teachers; even better when they’re not our own.
The good news: each one of these mistakes is 100% avoidable if you’re willing to take your time, learn the business, and surround yourself with people who can help.