Common Mistakes Real Estate Investors Make
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The question will always be which came first the chicken or the egg. In real estate it may be the deal or the plan. Many people make the mistake of finding a great property and then do not know what they are supposed to do. This is where the trouble begins. They have worked themselves backwards into a corner. The idea is to formulate a plan and then find the house which will work with this plan.
Failing to Plan: We are a planning people. We plan for the future, the college education for the kids, and retirement. When it comes to real estate it only makes sense to plan for that too. Sometimes the novice investor gets ahead of themselves and forgets to draw up a plan. Deciding what you want to do in the real estate market will determine what houses you buy and how you sell them. It is best to always have a plan.
Get Rich Quick: Planning to get rich quick is another common mistake. The big deals which will net you millions are usually only a dream. Investing in real estate is a slow and steady process. When you proceed at a steady pace, you will keep moving forward towards your goal. You can make money, but being a millionaire over night is stretching the limit.
On average a good investor can make $60 to $100 thousand a year with proper real estate investments. This strategy allows for a steady forward progress and takes into consideration that not everything will go as planned. You must keep real estate investing just what it is REAL.
Team Work: Don't think you can do it alone. There are many people who play a key role in making a real estate deal work. The smart investor has a team of specialists who assist him or her. They may not even know they are part of your team, but it's a team all the same.
You will need a good real estate agent or investment firm you can trust to help you analyze the properties. You will want an appraiser and a contractor or inspector to make sure the property is worth the investment. You probably even need a lender. The most important part of the team is the attorney or title/escrow company who is going to make sure there are no hidden surprises which may crop up at any point in the deal. This is not a loner business.
Due Diligence: One of the biggest mistakes investors make is not conducting their own thorough due diligence on the investment property. This is where well intentioned investors end up losing money, or worse yet, end up foreclosing and ruining their credit.
Due diligence means taking the time to research and verify the benefits and risks related to the investment. Examining the local market for growth and stability, values of local comparable properties, rental rates and demand, condition of the property if buying used, and of course a cash flow analysis.
Exit Strategies: Real estate investing is not a business with a single strategy either. You should have a plan A, B, and C. On occasion it does not hurt to have a D in the mix. For example, you may want to buy a home and resell it within 6 months but then the housing market changes quickly. If you can't get it ready for market in time to sell for profit, you may need to consider renting it. There are times when the rental market stalls or becomes depressed. When this happens you could offer a land contract (also known as an all inclusive trust deed in some states), or a lease option to get rid of the property. There may come a time when the only thing you can do is to sell to another investor and cut your losses before you lose any more money. The wise investor also knows when to bail.
The common mistakes made by the inexperienced investor can be avoided with a little research and planning. When you decide to invest in real estate, be sure to keep learning the business. There are many books available which teach some of the strategies the pros use. There are seminars, many of them free, which teach you how to invest. Keep studying and make smart decisions when it comes to real estate investing. This way you can avoid the common mistakes investors make.
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