8. They don’t know the maximum price to pay for a house. You must start with the end in mind and know your exit strategy before you start negotiating. You need to think about whether you are going to wholesale it, rehab it, or hold it as a rental. Whatever the exit strategy is you need to know that up front. When you start negotiating you will have that in mind so that you can make sure to leave enough profit in the deal, budget for renovation costs, or have enough equity to make the deal attractive. You have to always think ahead and then determine the right price to pay. The way to do that is to have a formula. You have to have formulas for your profits and for your different exit strategies. Before you get involved in negotiations you determine what your maximum offer price is. In other words, that price needs to be the deal breaker. If you don’t know what your drop dead price is before you start negotiating, it is easy to get caught up in the moment and go over that price.

Don’t fall into the same trap I see so many investors get into which is that they let the seller decide the price. They let the seller name a price and then try to work down from that number. The way I look at it is I don’t really care what the seller is asking for. I only care about what I can pay for the property. You want to work from your price not theirs. They might say the market price is $150,000 and are willing to sell it to you for $130,000. That shouldn’t mean anything to you. All you should care about is what you can pay for the property. Let’s say that amount is $100,000, then you should work from your $100,000. Obviously the seller is going to keep trying to work you up, but you already know that you have to be down there at $100,000 not the $130,000. So many investors think they got a good deal if they can get the seller to come off their asking price. It’s a good deal if you are buying as an owner occupant but not when you are buying as an investor. As an investment, you must look at properties from a completely different perspective. You only want to purchase the property if in fact there is a profit in it. You have to figure out what number you have to purchase the property at in order to make a profit and that is where you negotiate from. So know the maximum price for the property prior to even starting your negotiations. And don’t work off of what the seller is asking for, rather work from your maximum offer price.

These were eight of the most common mistakes I see real estate investors make. The bad news is they can be very costly. The good news is that none of these are really difficult to resolve. It’s just a matter of thinking ahead and planning, and not jumping into deals simply for the sake of doing the deal. If you just take a step back and think through your business and plan it out, most of these mistakes will be gone just from that simple step. Think of this as a business not as a hobby. Don’t look for the homeruns every time. Look for the base hits. Just keep making the base hits. If you do that and you have your singles and doubles eventually you are going to hit the grand slam and get rich. Don’t try to do that right off the bat. If you avoid these mistakes I guarantee you are going to be successful.

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