I like this story because my old neighbor did so many things wrong. This makes it a great teaching story. Often real estate success consists as much in avoiding common mistakes as knowing intricate techniques. Here, then are some of the mistakes he made.

1. He had no plan. He had only a vague idea about what he would do and how much the home would sell for.

2. He had no idea of how to value a house. If he had compared the home to recent sales (like our $17,500 purchase next door) he would have realized that the most he would get for the home was probably around $30,000, if that.

3. He had no concept of his market. This was a two bedroom starter home. Buyers for these homes are not looking for a fancy fireplace.

4. He had no contracts or firm quotes from contractors. He let them find as much as they wanted to do and charge him by the hour.

5. He didn't get an inspection. Had he gotten the home inspected, he might have had some idea of how many problems it had, and how much it would take to correct them.

6. He didn't understand the concept of return on investment. Even if buyers liked the fireplace and other features he put into the home, these features probably increased the value less than what they cost.

7. He didn't have enough money or financing lined up. This was a fortunate mistake, perhaps. Since the project was doomed to fail, it may have been good that he ran out of money.

Why not learn from the mistakes of others? As a side note, we selectively put $1,900 into our home there for a total investment (with purchase price and closing costs) of $19,800, and sold it for $28,000 four months after we bought it. We might have been lucky, but we also avoided some common real estate investing mistakes.

Copyright Steve Gillman. For a Free Real Estate Investing Course, visit: http://www.HousesUnderFiftyThousand.com

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