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How to Eliminate Risk in Real Estate
Investment!
Avoid 12 Common Mistakes Made by Novice Investors and
Ensure High Rates of Return!
Real estate investment has provided many investors with
positive cash flow, tax benefits and satisfaction of
making an impact in others lives. Like any investment
however, real estate has intricate nuances and market
trends that when ignored can cause an investor
tremendous heart ache.
Unbelievably many first time investors are willing to
part with their hard earned cash without taking the time
to study their investment. They rely on traditional
trends and gut feelings. Before you risk your investment
take the time to learn all you can about your market. By
aligning yourself with the right professional you can
avoid these 12 common mistakes and youll ensure an
excellent return on your investment.
- Failure to Determine Your Time Need - Cash
flow, capital appreciation, tax benefits, loss of
management, equity paydown and pride of ownership
are just some of the things that need to be
addressed before you make that investment. A service
minded real estate professional can be a tremendous
asset by taking the time to evaluate your needs and
making sure youve got all your bases covered.
- Not Checking out the Seller or Sellers Agents
Numbers - Claims of extremely high rates of
return run rampant in real estate investment.
Dont get caught up in the excitement - check
everything: rents, payment history, taxes, expenses,
deposits, future modifications... everything. Make
sure you have the right agent...its like having a
good insurance policy against overlooking all the
seemingly insignificant but very important details.
- Forgetting You Are Buying a Business -
Owning investment property carries with it a great
potential for creating wealth and... some
potentially difficult decisions. Evictions,
re-investment into the property and time management
all need careful consideration. Remember this is not
a hands off business.
- Avoid Negative Cash Flow - Property that
eats cash every month can drain your working
capital. This can create stress, frustration and
become quite painful. Predicting constant
appreciation is extremely difficult if not
impossible for the unseasoned investor. A strain on
your cash flow may cause you to sell the investment
before the benefits of ownership are ever realized.
- Failure to do a Thorough Inspection - Look
under every rock! Hire a professional inspector. Ask
the tenants about pest problems, structural damage
or reoccurring problems. Dont overlook anything!
A value driven real estate professional will help
you find the right inspector and can help you avoid
costly mistakes. When investing your hard earned
money be sure and use sound business judgment!
- Failing to Have Adequate Insurance -
Investment property brings liability. Tenants, cars,
parking lots, cleaning facilities, property
liability - the list is quite extensive. Adequate
insurance coverage is an absolute must! Be sure to
consult with an insurance professional and protect
your hard earned assets.
- Inspect, Approve, and Confirm All Documents -
The list of documents that need to be proofed can be
overwhelming to the first time investor. Building
permits, zoning laws, rental and lease applications,
health licenses, laundry leases, underlying loan
documents, CC&Rs, by-laws, title policies,
mineral leases, inspection reports, purchase
contracts, insurance.. dont attempt to do it
alone. The right professional can remove most of the
stress and bring the transaction to a conclusion
smoothly.
- Get a Bill of Sale For All Property Involved -
Many types of personal property (appliances,
furniture, fixtures, etc.) can be involved in an
investment sale. Be very detailed -know who owns
what!
- Charge Fair Rents - Vacancies, turnovers
and lease terminators are your biggest expense.
Charge fair rents, treat your tenants with respect
and respond as quickly as possible to their needs.
Its a lot less costly in the long run to take
care of the little problems before they become big
problems. Vacant property is your Achilles heel.
- Select Qualified, Good Tenants From the Start -
Take the time to check references. Previous
landlords, employers, financial references, credit
and judgments are all vitally important. If there
are any questions do a thorough investigation. Drive
by their previous residence. A little work up front
can save tremendous problems later.
- Make Sure You Get Estoppel Letters - Get
letters from tenants confirming the status of
tenancy. Make sure their version of the rental or
lease agreement corresponds with the sellers
interpretation.
- Dont Spend Positive Cash Flow - Most of
successful investors have free and clear properties.
Be sure to re-invest your cash flow back into the
property payment and speed up the amortization
schedule. This decreases your debt load and
increases your equity which builds your net worth.
Investment property can be one of the most rewarding
aspects of your financial portfolio. Be certain to have
all your ducks in a row before you invest. Do your
homework! Consult with a professional real estate agent
and protect yourself from the hidden troubles that can
plague first time investors.
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