Planning to enter the real estate investing market? Take heed; avoid these mistakes:
1. Planning as you go. First, you find the plan.Then you find the house to fit the plan. Pick your investment model, and then go find property to match that.
2. Thinking you’ll get rich quick. You have to be smart, you have to be willing to work, and you have to understand your risk tolerance.
3. Playing Lone Ranger. A key to success is building the right team of professionals. At the very least, you need good relationships with at least one real estate agent, an appraiser, a home inspector, a closing attorney and a lender.
4. Paying too much. The biggest reason investors don’t make money is simple: they pay too much for the properties. Due to mistakes in the analysis, the investor pays too much and then is surprised later when he doesn’t make any money.
5. Skipping homework. Many wannabe real estate investors don’t think twice about taking their financial lives in their hands without even cracking a book. Educate yourself before you put your family’s financial security on the line.
6. Ducking due diligence. Investors often have to move very quickly on their deals. They don’t do their due diligence about the deal, the costs or the market conditions, and they wind up draining their personal savings because the house needs extensive repairs or they can’t sell it.
7. Misjudging cash flow.If your strategy is to buy, hold and rent out properties, you need sufficient cash flow to cover maintenance.
8. Lowering the volume. If you’re working on one deal at a time, you’re doing transactions, not running a business. You need a steady pipeline of prospective deals; sufficient volume will weed out the marginal deals and let the good ones rise to the top.
9. Painting yourself into a corner.Many people buy a property and get stuck with it because they only have one exit strategy. They’re going to sell it or they’re going to rent it out. What if it doesn’t sell? What if the rental market stalls? Always have two, if not three, ways to get out of any deal.
10. Miscalculating estimates. After doing your homework, you should double the amount of time and money you think it will take. If you can still make money then and you might be able to rent it out, it’s a good deal.
Pat Curry, Bankrate