Real estate investing has been around so long that most people know someone that has invested in real estate and done well, until a major market correction happens of course. But regardless the fantasy of earning passive income to support your family, build for retirement or just diversify your savings through real estate is a pretty common dream. “Once an adjusted market starts to rebound, investing in real property also becomes more appealing,” states Pat Currey writer for Bankrate.com. He further goes on to state that there is a right way and a wrong way to go about investing in real estate.
10 of the most lethal missteps:
- Planning as you go. Many buy an investment house because they got a good deal and then try to figure out what to do with it. That’s backwards, pick an investment model then find the property to match that.
- Thinking you’ll “get rich quick.” Real estate is a good long-term investment but so is putting your money in mutual funds which are easier. Only gurus on infomercials say that it is easy or quick. If you are smart, willing to do the work and have an understanding of the risk tolerance you are starting off on the right path to getting rich.
- Playing Lone Ranger. A key to success is building the right team of professionals in key areas of the business such as real estate agents, appraisers, inspectors, closing attorneys, lenders etc. You can’t build an effective business if you are doing all the work yourself.
- Paying too much. Your profit is locked in immediately once the property is bought, do the analysis beforehand correctly and stick to your numbers.
- Skipping homework. Educate yourself before putting your financial future on the line.
- Ducking due diligence. Investors often have to move money very quickly on their deals. Take the time to do the research, it will save you lots of misery and lost profits.
- Misjudging cash flow. For a buy, hold and rent strategy you need sufficient cash flow to cover maintenance. Property management is expensive and fees add up if you can find a tenant. Effectively plan for all scenarios.
- Lowering the volume. Running an effective business means you have steady prospective deals in the pipeline as sufficient volume will weed out the marginal deals and let the good ones rise to the top.
- Painting yourself into a corner. Have a variety of exit strategies. Do not get stuck with a property because you only planned for a single out. There are too many variables not to have at least 3 plans of attack.
- Miscalculating estimates. Double the amount of time and money you think it will cost/take, if you can still make money then it’s a good deal. There are always unforeseen expenses or issues – plan for them.