Novice real estate investors make 12 common mistakes, and even experienced ones!
Real estate investment has provided many investors with positive cash flow, tax benefits and the satisfaction of impacting others’ lives. Like any investment, real estate has intricate nuances and risks!
Many wannabe investors are willing to part with their hard-earned cash without studying their investments. They rely on traditional trends and gut feelings.
Take the time to learn all you can about your market. By aligning yourself with the right professional, you can avoid these 12 common mistakes and ensure an excellent return on your investment.
1. Failure to determine the big picture – Why? Management, time, and energy are required.
2. Not checking out the Seller or Seller’s Realtor’s Numbers– Claims of extremely high rates of return run rampant in real estate investment. Don’t get caught up in the excitement – check everything: rents, payment history, taxes, expenses, deposits, & future modifications! Make sure you have the right Realtor.
3. Forgetting You’re Buying a Business—Owning an investment property can create wealth, a loss and potentially problematic decisions. Evictions, reinvestment in the property, and time management need careful consideration. Remember, this is not a “hands-off” business.
4. Avoid Negative Cash Flow—Property that consumes monthly cash can drain your working capital, creating stress and frustration and becoming quite painful.
5. Failure to do a Thorough Inspection– Look under every rock! Ask the tenants about pest problems, structural damage or recurring problems. Don’t overlook anything! A value-driven real estate professional will help you find the right inspector and can help you avoid costly mistakes.
6. Failing to Have Adequate Insurance—Investment property brings liability. This includes tenants, cars, parking lots, and property liability. Adequate insurance coverage is an absolute must!
Six More To Go!
7. Inspect, Approve, and Confirm All Documents—The list of documents needing proof can overwhelm the first-time investor. Building permits, zoning laws, rental and lease applications, health licenses, laundry leases, underlying loan documents, by-laws, title policies, inspection reports, purchase contracts, and insurance—don’t attempt to do it alone. A professional can remove most of the stress and smoothly conclude the transaction.
8. Get a Bill of Sale for All Property Involved—An investment sale can involve many types of personal property (appliances, furniture, fixtures, etc.). Be very detailed; know who owns what!
9. Charge Fair Rents– Vacancies, turnovers, and lease terminators are your most significant expenses. Charge fair rents, treat your tenants respectfully and respond quickly to their needs. Vacant property is your Achilles’ heel.
10. Select Qualified, Good Tenants From the Start– Take the time to check references. Previous landlords, employers, financial references, credit, and judgments are vitally important.
11. Make Sure You get Tenancy Letters– Get letters from tenants confirming the status of a tenancy. Ensure their rental or lease agreement version corresponds with the seller’s interpretation. (If you are adopting tenants from a purchase)
12. Don’t Spend Positive Cash Flow– Successful investors have free and clear properties. Reinvest your cash flow into the property payment and speed up the amortization schedule. This reduces your debt load and increases your equity, thereby boosting your net worth.
Investment property can be rewarding if your ducks are in a row!
Do your homework and, for goodness’ sake, work with a professional Realtor who knows income properties!
Real Estate Investing The Right Way
Investing money is putting money into something to earn a financial return or future benefits. Do not lose money!