5 MISTAKES EVERY REAL ESTATE INVESTOR SHOULD AVOID FRANK GALLINELLI
you inaccurate results. But even if you use a
professionally created tool like RealData’s Real
“The mistake that I see far
too often is a failure to
apply common sense.”
Estate Investment Analysis software, you are still
not immune to the classic “garbage in, garbage
out” syndrome.
The mistake that I see far too often is a failure to
apply common sense. For example:
throughout the entire model. Unfortunately, I often
see investors who then go right ahead and print
•
“Gee, this investment looks like it will have a
175% Internal Rate of Return. Looks good to
out their reports with these errors displayed and
me.” (Reality: You entered the purchase price
deliver the reports to clients or lenders.
as $1,000,000 instead of $10,000,000. You
should have been saying to yourself, 175%
Your objective in giving a report to a third party is
can’t be right; what did I do wrong?)
typically to try to convince the recipient to accept
your point of view. You will not accomplish that if
your report has uncorrected errors.
•
“Wow, this property shows a terrific cash flow.”
(Reality: You entered the mortgage interest rate
4. What’s Wrong with This Picture?
It’s the errors you overlook – the ones that don’t
have nice, big, upper-case alerts like #VALUE –
that can cause the greatest mischief of all; and
these can be troublesome even if the analysis is
for your eyes only.
as 0.07% instead of 7%.) Again, results outside
the norm, either much better or much worse
than you would reasonably expect, are your tipoff that a mistake is lurking somewhere. It is
essential that you develop the habit of
examining every financial work-up – those you
create, and also those that are presented to
you – very closely to see if the calculations
appear reasonable.
It may be an unwanted and unintended side effect
of the computer age that we tend to accept
calculated reports at face value. Be honest: How
5. What You Don’t Know CAN Hurt You
often do you sit at a restaurant with a calculator
and verify the addition on your dinner check?
The final item in our list of big-time mistakes goes
beyond the mechanics of spreadsheets and
This presumption of accuracy can be dangerous
when you are evaluating a big-ticket item like a
potential real estate investment. As I discussed
earlier, you could have bogus formulas that give
formulas and into the realm of fundamentals. You
can be the most proficient creator of spreadsheet
models on the planet, but if you don’t really
understand the essential financial concepts that
underlie real estate investment analysis, then you