How to
Eliminate Risk in Real
Estate Investment!
Avoid 12 Common Mistakes
Made by Novice Investors and
Ensure High Rates of Return!
Real estate investment has
provided many investors with
positive cash flow, tax
benefits and satisfaction of
making an impact in others
lives. Like any investment
however, real estate has
intricate nuances and market
trends that when ignored can
cause an investor tremendous
heart ache.
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.
- 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.
- Not Checking out
the Seller or Sellers
Agents 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.
- Forgetting You
Are Buying a Business -
Owning investment
property carries with it
a 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.
- Avoid Negative
Cash Flow - Property
that eats cash every
month can drain your
working capital. This
can create stress,
frustration and 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.
- Failure to do a
Thorough Inspection -
Look under every rock!
Hire a professional
inspector. Ask the
tenants about pest
problems, structural
damage or reoccurring
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!
- Failing to Have
Adequate Insurance -
Investment property
brings liability.
Tenants, cars, parking
lots, cleaning
facilities, 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.
- 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, CC&R’s,
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.
- 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!
- 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.
- Select Qualified,
Good Tenants From the
Start - Take the
time to check
references. Previous
landlords, employers,
financial references,
credit and judgments are
all vitally important.
If there are any
questions do a thorough
investigation. Drive by
their previous
residence. A little work
up front can save
tremendous problems
later.
- 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
sellers interpretation.
- 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 protect yourself
from the hidden troubles
that can plague first time
investors.
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