The 5 Do's and Don'ts of Real Estate Investments
Here is a quick mixture of the best tips and most common mistakes I´ve seen during my real estate investment career.
Do: Get your personal finances in order before jumping into real estate
It´s very important to get your own house in order before buying more of them. Have a clear idea of your existing income, expenses and outstanding loans before complicating your life further. If you do not do so already, spend a month or two tracking everything you spend money on – there might be substantial savings you can make that would free up more cash for investment. If you know there are some big ticket items in the near future (i.e. a new car), make sure you factor that into your calculations.
Don´t: Forget to sit down and write down your real estate goals
Before you visit a property, sit down in a quiet place with pen and paper and think carefully about what you wish to achieve from the real estate market.
You should have a clear idea of your budget, how long you want your money tied up for and what type of risk you are most comfortable with.
Do: Use common sense and set aside time to study
If you apply common sense and are willing to set aside significant amounts of personal time to research a deal (i.e. evenings and weekends), then it is unlikely that you will make an expensive mistake.
Most of the time, when people lose money on real estate investment, it is because they haven ?t done their homework properly. They bought in a hurry and didn ?t spend enough time doing basic due diligence.
Don´t: Rush into a deal that might be too good to be true
If you find a property that looks like an amazing investment, take a very deep breath and figure out what you are not seeing. Probably one time in twenty, it will be a great deal and you just happened to get there first.
More often that not, others will have seen it before you and will have passed on it for a reason. The best deals are usually the boring reliable ones, not the perfect shiny ones.
Do: Study the local neighborhood
This is crucial. Use zipdatamaps.com to research local demographics and household incomes. Use city-data.com to research crime data plus a lot of housing and business information. Use Trulia & Zillow to check local rental and sales comparisons.
Don´t: Buy without visiting the property personally
Real due diligence involves a mix of research you can do at home (see above), but it is also vital to walk and drive the neighborhoods yourself. There are lots of reputable agents and realtors who will give you accurate feedback on certain locations, but you need to start developing your own “gut instinct” for the property types and locations you are comfortable with. That only comes by pounding the pavement.
Do: Remember that the bottom line is all that matters
Just because a property can be bought for $40,000 and rented for $800 per month doesn´t necessarily mean it´s a great deal. You need to know and keep track of every overhead associated with it.
This would include community fees, maintenance fees, insurance, property tax, property management, repairs, vacancies and income tax.
Don´t: Underestimate the value of a stable tenant
Renting to professionals in full time jobs with a good credit history and decent salary is the best way to ensure a continuous and hassle free income stream. People outside of these categories tend to move around more and take less care of their property.
If a paying tenant makes a request (e.g. fix the lock on the bathroom), make sure they get a polite reply and that action is quickly taken to solve their problem.
Do: Keep on top of things
Sometimes people switch off after they ?ve bought and rented a properly only to find huge problems building up without their knowledge. Do not let that happen to you.
Keep a close eye on money coming in and out of your property investment at all times and make sure you file your tax returns every year (or better still, get a good CPA to do it).
Don´t: Be afraid to take the plunge once a deal stacks up
It is not uncommon to suffer from “analysis paralysis” – having so much information that you don ?t know what to do. It is just a phase and you can get through it by double-checking that you ?ve covered all the most important angles.
Once you have spent time figuring out what you want and have researched the opportunities that match this criteria, my advice is to take the plunge and don ?t look back!
There are huge wealth building opportunities out there, so happy investing :-)