7 Mistakes New Real Estate Investors Often Make
Whether you’re just starting or prepping for your next flip, here are the five biggest mistakes new investors make—and how you can sidestep them with confidence, clarity, and a solid plan.
1. Paying Too Much for the Property
The #1 mistake we see? Overpaying at the acquisition stage. When you buy too high, your margin for error vanishes. This is where the 70% rule comes in.
The 70% rule says you should never pay more than 70% of a property’s after-repair value (ARV), minus the cost of renovations. This ensures you leave enough room for profit, closing costs, and holding expenses.
Example: If a home’s ARV is $500,000 and needs $100,000 in work, your max offer should be:
$500,000 × 0.70 = $350,000
$350,000 – $100,000 = $250,000
But many new investors overestimate ARV or underestimate rehab costs. Others get emotionally attached and stretch too far.
How to avoid it:
Rely on recent, local comps—never “wishful” numbers.
Use our Loan Scenario Calculator to model your deal.
Walk away if the numbers don’t work. The best investors know when to say no.
Overpaying doesn’t just affect your profit—it adds unnecessary pressure from the start. If you’re depending on appreciation or a perfect resale price just to break even, you’re speculating, not investing. Market shifts, rising interest rates, or unexpected repairs can quickly flip the script. Sticking to the math—not emotions—protects your capital and positions you for consistent long-term growth. Investors who build wealth don’t chase deals—they make the numbers work for them.
2. Underestimating Renovation Costs
Flipping isn’t just about vision—it’s about math. And nothing throws off your math faster than an inaccurate rehab budget.
From permit delays to structural surprises, unexpected costs are almost guaranteed. If you don’t plan for them, they’ll eat your profits alive.
Typical soft costs investors forget:
Permit fees
Utilities during construction
Inspection rechecks
Insurance and taxes
Interest on your loan
Pro Tip: Always include a 10–20% contingency buffer in your budget. If your renovation is $100K, assume you might actually spend $110K–$120K.
At Intrust Funding, we require a detailed scope of work before funding—and we encourage all investors to build in contingency for the unknown. It’s not pessimism. It’s smart planning.
Need help estimating? Our loan consultants can walk you through rehab projections based on your specific market. Just schedule a call.
Many first-time investors budget based on best-case scenarios, often pulled from TV shows or outdated square-foot estimates. But every property comes with its own surprises: dry rot, asbestos, outdated wiring, or slab foundation issues can dramatically inflate costs. In addition to labor and materials, you’ll also need to factor in “invisible” expenses like utility bills during construction or additional holding time if permits are delayed. That’s why we encourage our borrowers to break down every phase of the rehab—line item by line item—before funding begins. The better your budget, the better your bottom line.
3. Skipping Skilled Help or Doing It Alone
You might be handy. But that doesn’t mean you should install your own electrical panel.
Many new investors try to DIY renovations to save money—or hire the cheapest contractor available. Unfortunately, this usually backfires.
Risks of going solo or hiring cheap:
Delays due to code violations or permit issues
Redos due to poor workmanship
Safety issues that could affect resale
Lawsuits or failed inspections
How to do it right:
Always use licensed contractors for structural, plumbing, HVAC, and electrical work.
Check licenses and insurance.
Interview at least three contractors.
Pay in phases tied to performance milestones.
You’re the project manager—not the technician. Build your team like a business, and treat every dollar like an investment.
Time is money in the flipping world. Every delay—caused by redoing poor workmanship, failing inspections, or reapplying for permits—adds to your carrying costs. DIY shortcuts may seem smart in the moment, but they rarely scale. Plus, buyers and inspectors are quick to spot amateur work, which can lead to price reductions or even buyer walkaways. Partnering with experienced, insured professionals helps you stay on schedule, ensures code compliance, and improves your property’s final valuation. Smart investors know they don’t need to do everything—they need to do the right things and delegate the rest.
4. Over-Improving or Mismatching the Market
We’ve seen flips in modest neighborhoods get outfitted with marble countertops, smart mirrors, and chef-grade appliances. These upgrades might look great—but they rarely translate to profit.
Why? Buyers won’t pay $100K more just because the faucet is gold.
Instead, look at the top recent sales in the area. What do they include? That’s your finish line—not HGTV.
High-ROI upgrades:
Mid-range kitchen and bathroom remodels
New flooring and paint
Updated lighting
Curb appeal (front door, landscaping, paint)
Low-ROI upgrades to skip:
Pools
Home theaters
Luxury finishes not supported by comps
Remember: you’re not designing your dream home. You’re designing the buyer’s next investment or starter home. Appeal to the masses, not your personal style.
Over-improving is one of the costliest—and most emotional—mistakes new investors make. You want your flip to shine, but there’s a fine line between standout and overpriced. Always renovate to the expectation of the neighborhood, not to your personal taste or aspirational ideas. A $50,000 kitchen in a $400,000 neighborhood isn’t just overkill—it’s wasted capital. Buyers won’t pay extra for features they didn’t ask for, and appraisers won’t either. Focus on clean, neutral design choices that photograph well, show well, and reflect the price point your comps support.
5. Lacking an Exit Strategy (or Being Too Optimistic)
Most flips don’t fail because the property is bad. They fail because the plan was.
Too many new investors:
Bank on top-dollar resale
Forget about the FHA 90-day flip rule
Assume everything will go smoothly
Your flip plan should include:
Primary exit: Fix-and-flip resale
Backup: Rent and refi or wholesale
Timeline with margin: Assume 4–6 months, not 2–3
Conservative ARV estimate (use lowest comp)
Holding cost modeling: include interest, taxes, and insurance
If you’re forced to hold the property longer, can you rent it? If the market slows, do you have a backup buyer? These questions should be answered before you ever close.
Hope is not a strategy. Every investor needs an exit plan before they buy—not after the paint dries. Markets shift, permitting delays happen, and buyer preferences evolve. The more flexible your strategy, the more resilient your investment. Have a rental contingency plan. Know if the property qualifies for FHA or VA buyers (which might limit your post-renovation window). Budget for extended hold times—not just the renovation, but also the time it takes to list, sell, and close. When your flip has a strong financial foundation and an adaptable exit strategy, you reduce risk and increase control.