Happy House Hacking Podcast EP 51: Common Mistakes in Real Estate Investing

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5 Common Mistakes in Real Estate Investing

Real estate investing offers some of the strongest paths to wealth creation, financial security, and a reliable cash flow stream. The potential for long-term appreciation through acquiring a solid rental property is massive, but the journey from hopeful beginner to seasoned investor is often filled with common, costly mistakes. Success is achieved not merely by finding a great deal, but by meticulously avoiding the major real estate investing mistakes that can drain your returns and turn a promising asset into a financial burden.


At The Schwaegerle Team, we believe that every investor deserves the peace of mind that comes from making informed, data-driven decisions based on local expertise and conservative analysis. Our mission is to empower you to achieve financial freedom and build generational wealth through strategic property ownership. So, on a recent episode of our Happy House Hacking podcast, we sat down and dove into the five most common investor mistakes we see. Learn how a proactive approach to budgeting, due diligence, and market analysis can help you avoid surprising hidden costs and secure your ideal property location.



The Real Estate Investing Mistakes You Need to Avoid Making

Successfully building a portfolio of profitable rental property assets depends almost entirely on risk mitigation. The difference between achieving consistent cash flow and facing negative returns often lies in avoiding foundational real estate investing mistakes. Pay close attention to these areas before making your next move. 


Mistake #1: Not Getting Pre-Approved Early Enough 

The biggest real estate investing mistake is skipping early pre-approval. As Owen Schwaegerle stated, "Investing in real estate, you need to know your numbers." For us, pre-approval is your essential financial roadmap, confirming what you can afford and what will truly provide cash flow for your goals. 


By lacking pre-approval, you risk wasting time and encountering costly surprises later on, such as unexpectedly high interest rates for an investor loan or sudden demands for a larger down payment toward the rental property. A proper pre-approval accounts for these differences, protecting your anticipated cash flow and preventing unnecessary stress. Knowing these details upfront is also important to ensure we can act decisively when the ideal rental property emerges. 



Mistake #2: Forgetting to Budget for Operating Costs 

Once an investor is pre-approved, the second major mistake is simplifying the financial model. Many believe that if the rental property income exceeds the mortgage payment, the remainder is automatically positive cash flow. However, this thinking is incorrect. This oversight of necessary operating costs and unexpected expenses is a common investor mistake that severely undermines the financial health of your asset.


This mistake is really about overlooking hidden costs—the expenses you incur after closing that determine profitability. We must budget conservatively for everything beyond principal and interest:

• Utilities and Metering: For a multi-family property, you must confirm if all units are individually metered. Camille Schwaegerle highlighted, if there's only one water meter, then that utility bill becomes a fixed expense that eats into your profit margins, making it much harder to achieve target cash flow.
  
  
• Maintenance Reserves and Pest Control: Especially in our coastal area, maintenance is non-negotiable. Wood-destroying organisms like termites are common. This means budgeting monthly for the cost of pest control and expecting major termite work and fumigation every few years. Failing to budget this in means you won't be "...cash flowing what you need in order to make this investment worthwhile," as Camille stated.
  
  
• Landscaping and Insurance Fees: There is a lot that goes into maintenance including landscaping fees and necessary tree trimming to satisfy insurance carriers. These recurring expenses must be meticulously factored in.

Never rely on a quick estimate. Our advice is to require documented proof of past expenses. If you are purchasing an existing rental property, you should ask for a copy of their operating statement for the last year or two. Analyzing the current owner's line items—such as $95 to $150 per month for pest control—allows us to create a reliable and conservative budget, transforming speculative real estate investing into data-driven decision-making.



Mistake #3: Not Thinking Long-Term About Property Location

Choosing a rental property purely because it's "super affordable" without critically evaluating the long-term property location is a colossal investor mistake. As Camille detailed, many investors ignore the fact that the property might have a major location default that will inevitably hurt its marketability and long-term appreciation.


In the San Luis Obispo area, for instance, some investors assume that student renters will tolerate anything. We caution against this thinking because students are people too. Renters are savvy consumers who use online tools to shop the market. If your property is poorly located, it will sit longer. 


As Camille warned, "The longer your rental sits on the market, the more people start to question what's wrong with it. And then you end up having to do a price reduction." We must always assess what value the property brings to the market compared to the competition. Key property location red flags to avoid include:

• Safety and Environmental Risks: We need to think about noise and environmental issues.
• Insurance Liability: A property situated up against a wild preserve, for example, could be a high fire risk with increased insurance, which again increases your operating expenses and eats into cash flow.

Mistake #4: Not Understanding Competition and Inventory

A common set of real estate investing mistakes stems from a lack of accurate market awareness. Price is driven by supply and demand, and miscalculating this leads to weak offers or unnecessary overpayment. Even with some inventory growth, this isn't a definitive buyer's market. As Camille noted, we're "...still seeing homes sell for close to 98% of the list price."


Inventory is still tight. If you're serious about a property, there is a chance another buyer will take it. Also, dropping interest rates are creating some buyer excitement, further increasing competition. Failing to understand these subtle shifts is a crucial investor mistake. We help our clients avoid this by using the latest data to position offers competitively, recognizing that low supply continues to increase value for the properties in the long-term.



Mistake #5: Overlooking Hidden Costs in Due Diligence

The final, and potentially most financially ruinous, real estate investing mistake is skipping essential specialty inspections. A basic home and pest inspection simply isn't enough to secure a complex rental property. You must uncover significant deferred maintenance. The cumulative expense of deferred maintenance compounds rapidly, often costing five to ten times more down the road than an initial repair. Focus on: 

• The Sewer Lateral: A repair for a damaged sewer lateral can be $12,000 or more. If your general inspection calls attention to it, or if we want to be extra cautious, getting that line scoped upfront allows us to know the cost and ask the seller to help pay for it through a reduction or concessions.
  
  
• The Insurance Trap: This is where real estate investing mistakes can impact your entire portfolio. If you file a claim for that $12,000 emergency repair, the claim follows you, not just the rental property. We must carefully consider whether a claim is worth contacting the insurance company over because future insurance companies will see your history, potentially leading to higher premiums on every investment. 
  
  
  

To guard against first-year hidden costs, we always suggest negotiating for the seller to purchase a one-year home warranty. This warranty helps cover appliances and major systems, reducing the initial burden of expense and protecting your fragile early cash flow from minor disasters.



Your Path to Profitable Real Estate Investing

The difference between successful and frustrating real estate investing often comes down to diligence and preparation. By knowing your true borrowing capacity to guarantee sufficient cash flow, meticulously budgeting for all hidden costs, choosing a strong property location aligned with economic growth, and offering competitively, you gain a significant advantage. All of these things serve as vital checkpoints, ensuring your next rental property acquisition is built on conservative estimates and strategic foresight, not costly assumptions.

At The Schwaegerle Team, we believe that sustainable real estate investing success is not a matter of luck, but a direct result of meticulous planning and number-crunching. We view every potential rental property through a strategic lens, ensuring cash flow is protected from unexpected hidden costs and that the chosen property location is primed for long-term growth. If you’d like to learn more about real estate investing, be sure to listen to the rest of the Happy House Hacking podcast!