Two Mistakes We See After 2,000 Real Estate Deals

The same two mistakes keep showing up

Leverage Companies has been part of more than 2,000 real estate transactions since 2019, through our own lending, buying and property management. Across all of them, investors keep making the same two mistakes.

Both come from wishful thinking, and both can be caught before you sign anything.

Mistake one: planning the timeline you hope for

Ask anyone who’s redone a kitchen. The final bill usually lands somewhere near the estimate. The finish date almost never does.

Investment properties work the same way. Renovation budgets tend to come in close to plan. Timelines tend to run long, and the delay usually has little to do with the construction itself. More often it’s one of these:

• Permits that take longer to issue than expected.
• Inspections that have to be scheduled, failed, fixed and rescheduled.
• Materials with long lead times, like windows, cabinets or a new boiler.
• A contractor who took another job and shows up two weeks later than promised.

Every extra month costs money. You’re still paying the loan, the property taxes and the insurance, and the house isn’t bringing in any rent yet.

Here’s how that adds up. Say a property carries $3,000 a month in loan payments, taxes and insurance. A renovation planned for four months that takes seven costs an extra $9,000 before a tenant ever moves in. On a deal with a thin margin, that can be the whole profit.

Mistake two: guessing at the rent

Sale prices are public and easy to look up. Rents take more digging, so many investors skip that part.

They hear there’s a housing shortage, find one listing nearby with a hopeful asking rent, and build the whole deal around that number. Then the house is finished, the listing goes up, and nobody bites at that price. The rent comes down, and the numbers stop working.

An asking rent on a listing is what a landlord hopes to get. A signed lease is what a tenant actually agreed to pay. Those can be far apart, especially for a property in a different condition or on a different block.

A good rent check also looks at how long similar units sat empty before they leased. A rent that takes three months to get can cost more over the year than a slightly lower rent that fills in two weeks.

How to plan a deal that holds up

Both mistakes come down to the same fix: plan for what’s likely to happen, with numbers you’ve checked.

On the timeline:

1. Plan your construction budget at the realistic number.
2. Plan your carrying costs at the slow timeline, because the project will probably run late.
3. Add up the full monthly carry, including loan payments, taxes and insurance, and multiply it by the extra months.

On the rent:

1. Find what comparable properties nearby have actually leased for, using signed leases where you can get them.
2. Match the comparison closely: same number of bedrooms, same condition, same part of town.
3. Check the rent with the same effort you put into checking the purchase price.

In New Jersey especially, don’t treat property taxes and insurance as fixed. Both can rise from one year to the next, and both are part of the monthly payment the rent has to cover. If you’re planning to refinance into a long-term rental loan, that’s the number the lender will check. Our DSCR explainer shows how.

How to build a timeline you can trust

A realistic schedule starts with the parts that are out of your hands:

• Call the town’s building department before you close, and ask how long permits for this kind of work are currently taking.
• Order long-lead items on day one, so windows, cabinets and equipment are on site when the contractor needs them.
• Put dates in the contractor’s agreement, with payments tied to finished work.
• Plan around inspections, since a failed inspection can add a week or more before the next visit.
• Leave time to lease up. A finished house still has to be listed, shown and rented, and that can take another month.

Add those together and compare the total to the schedule you were hoping for. The difference is the number to put in your budget.

Bad deals show themselves early

Do those two things and most bad deals show themselves before you’re locked in. A deal that only works if the contractor is on time and the rent matches the best listing in town has no room for anything to go wrong.

That’s the biggest lesson from more than 2,000 transactions. The deals that hold up are the ones planned for things going a little wrong.