(MP) Real estate investing can offer great returns from fixer uppers to flipping or long-term rental properties. For all those people who have invested for years, you’ve probably learned many hard expensive lessons. But, you whom are new to extraordinary life you will certainly come across problems you as you began your real estate investing career.
I have made many mistakes in my early years in real estate investing. And those mistakes turn out to be expensive lessons. Below are the top 10 real estate mistakes I have made over the years hence you’ll never have to.
Real Estate Investing Mistakes
1. Trying to do it all by yourself
No man is an Island –no woman either for the matter. All of us need help and in real estate there are experts to handle certain business functions. They’re experts inside their particular fields of real estate. Using experts will allow you more time to find deals instead of wasting time learning things another person could do. Successful real estate investors form a Power Team composed of experts within a particular field.
Mortgage Broker – This person has dozens of contracts with lenders and can tailor your financing package to better get your loan.
Real Estate attorney – They will help you protect your assets from lawsuits. In certain states attorney’s and not title companies handle closings.
Banker – It is best to grow a relationship with a vice-president executive with lending authority. Take the time to cultivate this relationship and get him or her on you side. Introduce yourself and get the ball rolling.
Appraiser – They compute market value of properties usually for lenders. They’ll help you get buy-fix-and-sell projects quickly by getting the reports FHA financing for your buyers.
A Title Company – Will help provide title reports on properties you’re considering and you know in advance if there’s any problems with the title.
Sub-contractors – A painter, flooring experts, roofer, plumber an electricians. Try to get team members to agree to get paid when the property is sold.
Handyman – He act as a general contractor for your property or project. He’ll oversee all rehabilitation and provide valuable estimates of costs for you to save time on the front end.
Mentors – Find a local real estate investors club and join. You’ll learn a lot from people who have done it successfully.
Realtors – Real estate agents have tons of properties and info about sellers at they’re disposal. Don’t make the mistake of leaving them out of your team. For more in-depth reasoning on why you’ll need a Realtor on your power team read Marc Hrisko’s “Power Team Realtors.”
2. Wasting time on the wrong properties
Dont’ try to fix the wagon if it isn’t broke. Every successful real estate investor know single family units will always sell. If you want to turn properties over quickly (fewer costs to you) stay away from urban war zones. More people can afford and buy single family homes which creates higher demand.
3. Forgetting money is earned when you buy
One of the greatest real estate investing principles says: You make your money in real estate when your acquire the property. You may collect later, but you earn it when you buy or in the way you get it. This means you always try to buy low and sell higher than your costs to repair and sell. Period. Don’t make the mistake of buying a property for more the 75% of its Fair Market Value (FMV). You won’t make much in this career if you do.
4. Not making the right kinds of offers
The name of game is placing a great deal of offers out there. If you subtract all the costs of buying and fixing the house up from the FMV (important see site glossary), you end up with a figure that is no more than 75% of FMV. That being the case, expect that 19 out of 20 offers will be rejected. Than if one out of ten is accepted, you will be doing great in this business, believe me. Remember this is about putting enough offers out there. If everybody accepts your offer you’re being far to generous and by leaving a lot of profit on the table.
5. Stretching yourself too thin
Both selling houses and renting them for profit is good, however for beginners I always counsel keeping to fixing-up and selling. Rental properties need a lot of overhead. Purchasing, repairing are but a few expenses involved. Next you have to consider taxes, insurance, utilities, maintenance, repairs, upgrades, non-rental periods. If you’re just starting out and renting you can quickly end up cash poor.
6. Using your own money
One the biggest mistakes newbies make is using their own money to buy real estate. The greatest obstacle in purchasing a property is the down payments help. Let’s see how you can overcome this obstacle. A down payment is simply the difference between what the lender disbursed and what you are paying for the property. The seller is going to get the full sales price at closing, so the down payment doesn’t matter to him/her. The difference really matters to the lender for two reasons:
A. The lender wants to know you (the borrower) have something at stake in the transaction, so if times get tough down the road, you won’t walk away from the house so easily.
B. The lender wants to reduce its exposure. That’s the amount the lender stands to lose if the loan goes bad.
Most mortgage lenders tend to be more liberal than commercial lenders in that they’re eager to go easy on your out-of-pocket commitment if they can lessen their exposure. If ever the seller takes back a second mortgage for 75% of the sales price, the lender’s exposure in minimal. If you buy the house for 75% of what it’s worth and place the down payment in a second mortgage to the seller the lender’s exposure is minimal. You brought the house with no down payment and received one mortgage from lender and one from the seller. Remember, you’re selling the house quickly and you’re about to make a profit. Trust me deals like this happen everyday in real estate.
7. Overlooking ugly houses
In real estate investing you’re not looking for a particular house, you’re looking from a highly motivated seller. It’s o.k. if a house requires a little paint and a little repair that won’t cost you much. You merely don’t want properties that need major surgery. Look for houses that need only cosmetic fixes. Your handyman or home inspector should be able to tell you before you buy.
8. Letting fear control you
Don’t think too much before starting your journey in real estate investing. No, you don’t have to be completely organized with a corporation, registered business name, license or even a business card. There is not right or wrong time. If you don’t have money – try my ‘NO MONEY” Real estate contract flips. You don’t even need to have profound knowledge to get started. You will acquire all the knowledge you need as you go forth.
9. Not creating a sales strategy
One of the most effective strategies for selling a home is to advertise it as for sale on a rent-to-own basis. Show a set amount for deposit in your ad. The deposit reflects what the house would rent for. Most renters who are currently paying your advertised amount will respond. You help the buyer obtain FHA financing, tell him/her to perform some sweat equity (fixing up) for a part of the down payment, and rent to them for one year one year until the close of sale. I tell you more about this and other strategies in another article.
10. Planning for success
Don’t make a mistake of planning long-term strategies, you need to get out there and do it. Just start small and then build on what you already know. “Don’t let what you cannot do interfere with what you can do” – John Wooden. Keep learning and although you may meet some bumps in the road –actively engaging in real estate investing will bring you rewards.
Note: Also I highly recommend Chris Clothier’s Video Share about his “Top 11 Mistakes to Avoid.” Chris goes in about how to protect yourself as you invest in real estate.