Wednesday, May 4, 2011

How to Avoid Real Estate Investment Mistakes

How to avoid Real Estte Mistakes- Look for properties that are being sold at a deep discount. As a beginning real estate investor, you need to keep your investment as small as possible. Look for properties that are in need of repair or come from some other type of distressed situation. For example, if the house is very old and the owner needs to get rid of it, you might be able to get it for a large discount. If you find a property that is significantly undervalued, you can lower the amount of money that you have to put up because your down payment is based on your lender's loan-to-value ratio.


- Buy a property that you find at a discount. If you have enough cash on hand to purchase the property, consider forgoing a loan. If you have enough cash only for the down payment, obtain financing for the rest of the purchase. Apply to a lender and provide it with the necessary information. Get a loan for the amount that you need and buy the property.

 - Repair the property so it's up to the standards of the market. If you purchased a property at a large discount, there is a good chance it will need some work. Hire a building inspector to help you identify areas of concern. Then hire a contractor to perform the work or do it yourself. You'll need to get the property back to an attractive condition.


- Rent out the property to a tenant and begin collecting rent. If you are a beginning investor don't go and sell the property right away. To make the most of your real estate investment rent the house for at lest a year while the house is on the market.  Renting a property is one of the easier methods to earn money for beginning investors. While you could run into some problems with your renters and have maintenance difficulties, you can generally solve them with a little bit of work. You might even consider hiring a property management company to handle the property for you.


- Sell the property for more than what you paid for it. You can do this after renting the property for a certain amount of time or immediately after you fix it up. List the property with a real estate agent and sell it for a profit.


 - Buying a house because you think the price is right, the income potential is good, or because it simply is a deal you cannot refuse is a calamity waiting to happen. There are many factors to consider prior to jumping in on the invesment band wagon in hopes of being the next Donald Trump, Real Estate Investor and Development Billionaire. One should first count the cost to see if there is fact, enough to finish.

 - The first decision needed, in your decision-making process, is to decide which investment model is right for you. The business model is the means or method in which you plan to earn revenue with your investment. It is the system that outlines how you plan to earn money, sustain that source, and develop it into its grow potential. When choosing your investment model, it is wise to evaluate if it is a model that can sustain on-going change, the economy, management changes and/or process replication.

 - Considering how much cash you actually have available to you for investing is important. Having just enough to complete the purchase, pay the bills, and just break even is not good enough; cash reserves need to be available to maintain your sustainability. Money should be available for the unexpected events such as a leaky roofs, busted pipes, non-working Frigidaire stoves, or water heaters. If the business model you chose for your real estate investment business focuses on the buying and renting of properties, then the responsibilities for the property repairs are yours and money needs to be available to do so. A good way to lose your revenue potential is to lose your tenants, which is sure to happen if you are not prepared as a home owner to manage those responsibilities when needed.
Another area to consider, money needs to be available to cover all expenses in the event the tenant moves out. The mortgage, utilities, insurance, association fees, and advertisement costs to locate new tenants all need to be accounted for. Some properties can potentially sit un-occupied for several months at a time, so you have to be sure, you can handle the bill.

 - Buying properties from MLS listings or other searches at full price is not the way to make a profit with your investment. To generate revenue and build the value of your wealth, you must buy at a reasonable discount. Also, you cannot commit to a deal based on some else's previous experiences, performance, or success story. For example, do not buy a property on the basis of it is only $80,000 and last year you remember Mr. or Mrs. X paid $60,000 for a property and sold it for $260,000. This is not a wise investment strategy. Real estate investing is not a series of what looks to be just buying and selling transactions. Real Estate Investing is the Art of planning and gathering of the most efficient and effective resources to put in action the best solution that will achieve the desired goal or mission.

 - Having the right team of professionals available can help you avoid costly mistakes. Develop relationships with professionals such as real estate agents, home inspectors, appraisers, attorneys, CPAs, construction contractors, electricians, roofers, painters, heating and air contractors, cleaning services can all alleviate the responsibilities and pressures for these field specific tasks that you should not being taking onto yourself as business owner.


Check out this link for an amazing e-book on real estate investing.