THE TEN COMMON MISTAKES THAT REAL ESTATE INVESTORS MAKE AND HOW TO AVOID THEM
THE TEN COMMON MISTAKES THAT REAL ESTATE INVESTORS MAKE
AND HOW TO AVOID THEM
1. NOT HAVING THE PROPER INVESTMENT KNOWLEDGE: Real Estate investing is one of those subjects where the risk involved is directly proportional to the knowledge you have. As a real estate investor you have to invest in your education by attending seminars and other educational opportunities to educate yourself before you plunge into the game. The more knowledge you have the more confidence you will become as a real estate investor. The more you know about negotiation, creative real estate financing, lease options, the different acquisition techniques and other strategies the less risky your investment. Your knowledge will help minimize the risk inherent in real investment. Please investment in your education.
2. NOT DEVISING AN INVESTMENT STRATEGY: What is your strategy as an real estate investor? Are you a cash flow investor? Do you buy, rehab and sell? Do you buy, rehab, refinance and sell or rent? Do you buy and wholesale to other investors? Do you buy and flip the property immediately? If you device your strategy before you buy, it will enable you to see your financial numbers clearly before you buy. A lot of beginning investors do not have a clear strategy and as a result they lose money because they try to change strategy in mid-course. Before starting your investment career please have a clear investment strategy.
3. NOT UNDERSTANDING THE REAL ESTATE MARKET: It is advisable to understand the real estate market in your local area. Even if you are buying one property per year it pays to pay attention to the shift in the market place. As you may know there is an interplay of market forces that is very subtle but do make an impact on the local market. For example, shift in population, immigration patterns, inventory of new buildings compared to re-sales, foreclosure levels in the market place, interest rates etc. All these invisible patterns do make an impact in the market place. As investors we need to understand market forces in order to make rational decisions. Also whether or not we are in a buyer's market also do have an impact on particular investment strategy that we are pursuing. For example, what is the state of the rental market? Is there an over-supply of properties therefore trending down rental rates? There are some of the factors that need to be considered in making a decision to purchase an investment property. For example, what is your strategy in the current market environment?
4. BEING TOO GREEDY: Many a real estate investors come to this business and they want to make so much money in their first deal. Investing and building wealth in real estate does not have to be doing a quick deal here and there and making money. When I talk to investors they tell me I want to make $30,000.00 in my first deal. They have no clue as to the kind of strategy they need to use to make this kind of money. My suggestion is that we have to be realistic in our approach to real estate investment. Like any worthwhile project, it takes a while to succeed and make a lot of money.
5. NOT UNDERSTANDING FINANCING OPTIONS: Financing is the wheel that turns the real estate industry. As a real estate investor, it behooves you to learn and know about this topic. Realize that financing plays a major role in buying and selling real estate; it affects real estate values. Interest rates are very determinate factor in real estate financing. The higher the interest rate the higher the monthly payment and vice verse - the lower the interest rate the lower the mortgage interest you can afford. There are various financial options available to the real estate investor from the ubiquitous traditional financing to the more esoteric creative real estate financing. It is advisable to seek the advice the services of an aggressive knowledgeable and investor savvy mortgage lender to help you with your financing needs. Do you know the difference between a mortgage broker and a mortgage lender? How about creative real estate financing and the more traditional approach. How is it that creative real estate financing is legal in its entire ramification, but it is not very popular with the public?
6. NOT HAVING ENOUGH CAPITAL: Despite the "Nothing Down" techniques being preached by the late night television gurus, real estate investment is very capital intensive. I have always cautioned beginning investors to have some cushion to carry them through the lean times and also in case of unexpected , and occasional problems that often accompany rental properties. As the saying goes it is not advisable to be cash poor and equity rich. A lot of investors place heavy emphasis on the quantity of the property that they possess instead of the quality of their portfolio. I was very excited to hear a very prominent investor suggested that investors should grade their holdings every year so that they can get rid of all the alligators (properties that are eating you alive - literally). Please remember that the quality of your holdings is very important.
7. NOT TREATING REAL ESTATE INVESTING AS A BUSINESS: A lot of people choose real estate investment because a number of late night television gurus promise quick riches in real estate investing to enable you to take expensive vacations to the Caribbean and buy other expensive gizmo. The truth of the matter is that like any other business it takes time for a business to develop a life of its own, get to define your niche, and even acquire the necessary capital to complete deals. A good systems would take about two to five years to develop. The get rich mentality perpetuated by the gurus has led to a loft of frustration on the part of seminar participants. It takes months and years to build a sustainable infrastructure to support your business and nurture it to grow.
8. NOT HAVING A WINNING STRATEGY: A winning strategy is a set of rules that you devise to help you achieve your investment goals. As an investor you should be able to quantify your winning formula. What is your winning formula as a real estate investor? For example "my winning formula is to buy wholesale properties and re-sell the properties to other investors to generate a minimum cash of $10,000.00 dollars per transaction. A winning formula is a statement of purpose designed to get you focused on your strategy as an investor. A winning formula enables you to focus on your strategy as an investor. It is designed to marshal your resources both visible and invisible.
9. NOT UNDERSTANDING THE PSYCHOLOGY OF INVESTMENT: What is the psychology of investment? It has to do with your mind set as an investor. As an real estate investor most of your offers are going to be rejected because you want to buy your properties wholesale or below market price. In view of this you have to prepare yourself mentally for all the rejection or you will quit the game of real estate investing after a number of your offers have been rejected.
10. NOT KNOWING YOUR EXIT STRATEGY: As a real estate investor, you have to know your exit strategy before you purchase your property. In other words, you ask the question: What am I going to do after I purchase the property. Are you buying the property and flip to other investors? Are you buying rehabbing and selling to another investor or the retail buyer? It is always advisable to know your exit strategy before you buy a piece of property.