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Real
estate investment has provided many investors with positive cash
flow, tax benefits and the satisfaction of making an impact in others
lives. However like any investment, real estate has intricate nuances
and market trends that when ignored can cause an investor tremendous
heartache.
Unbelievably,
many first-time investors are willing to part with their hard-earned
cash without taking the time to study their investment. They rely
on traditional trends and gut feelings. Before you risk your investment,
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 you’ll ensure an excellent return on your investment.
1. Failure
to Determine Your Time Need- Cash flow, capital appreciation, tax
benefits, loss of management, equity pay-down and pride of ownership
are just some of the things that need to be addressed before you
make that investment. A service-minded real estate professional
can be a tremendous asset by taking the time to evaluate your needs
and making sure you’ve got all your bases covered.
2. Not Checking
out the Seller or Seller’s Agent’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...
everything! Make sure you have the right agent. It’s like
having a good insurance policy against overlooking all the seemingly
insignificant but very important details.
3. Forgetting
You’re Buying a Business- Owning investment property carries
great potential for creating wealth and... some potentially difficult
decisions. Evictions, re-investment into the property and time management
all need careful consideration. Remember this is not a “hands-off”
business.
4. Avoid Negative
Cash Flow- Property that eats cash every month can drain your working
capital. This creates stress, frustration and can become quite painful.
Predicting constant appreciation is extremely difficult if not impossible
for the unseasoned investor. A strain on your cash flow may cause
you to sell the investment before the benefits of ownership are
ever realized.
5. Failure
to do a Thorough Inspection- Look under every rock! Hire a professional
inspector. 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. When investing your hard-earned
money, be sure and use sound business judgment!
6. Failing
to Have Adequate Insurance- Investment property brings liability.
Tenants, cars, parking lots, property liability - the list is quite
extensive. Adequate insurance coverage is an absolute must! Be sure
to consult with an insurance professional and protect your hard
earned assets.
7. Inspect,
Approve, and Confirm All Documents- The list of documents that need
to be proofed can be overwhelming to the first time investor. Building
permits, zoning laws, rental and lease applications, health licenses,
laundry leases, underlying loan documents, by-laws, title policies,
mineral leases, inspection reports, purchase contracts, insurance..
don’t attempt to do it alone. The right professional can remove
most of the stress and bring the transaction to a conclusion smoothly.
8. Get a Bill
of Sale For All Property Involved- Many types of personal property
(appliances, furniture, fixtures, etc.) can be involved in an investment
sale. Be very detailed... know who owns what!
9. Charge
Fair Rents- Vacancies, turnovers and lease terminators are your
biggest expense. Charge fair rents, treat your tenants with respect
and respond as quickly as possible to their needs. It’s a
lot less costly in the long run to take care of the little problems
before they become big problems. 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, judgments
are all vitally important. If there are any questions, investigate
fully. Drive by their previous residence. A little work up-front
can save tremendous problems later on down the line.
11. Make Sure
You get Estoppel Letters- Get letters from tenants confirming the
status of tenancy. Make sure their version of the rental or lease
agreement corresponds with the seller’s interpretation.
12. Don’t
Spend Positive Cash Flow- Most of successful investors have free
and clear properties. Be sure to re-invest your cash flow back into
the property payment and speed up the amortization schedule. This
decreases your debt load and increases your equity... which builds
your net worth.
Investment
property can be one of the most rewarding aspects of your financial
portfolio. Be certain to have all your “ducks in a row”
before you invest. Do your homework! Consult with a professional
real estate agent and relieve yourself of the hidden troubles that
can plague first time investors.
I hope this
brief report has been of value to you. It is my ultimate desire
to help you achieve your real estate investment goals and provide
you with the most professional, efficient and effective service
possible! If you have any questions or there is any way I can help,
please give me a call. |
