Avoiding these mistakes in Real Estate can Save You Thousands!

July 24, 2009 - PRLog -- Before you jump into property investment make sure you understand the market and the risks. Improve your success rate by avoiding these common mistakes:

•   Jumping in without understanding the market and how it aligns with your investment goals.  You need to know what you are buying, why you are buying and what you are going to do with it. Too many people set out to "flip" a home without any idea where they are going with it. Look to the long term, not just tomorrow. Figure out what you want to buy. Decide how long you want to own the property. Set goals and make plans. If you are investing, you better know what rate of return you want and when you will exit. Remember - Time pressure leads to Weak Due Diligence.  Educate yourself before you put your family's financial security on the line. Read articles, check out books from the library. Investors often have to move very quickly on their deals. That doesn't mean they sign a contract and write a check without plenty of research, though. This is a common mistake. 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. If you are buying property soley for the reason of growth, make sure you have data supporting that.  
•   Not analyzing your Payback.  You want to be absolutely sure that your investment will pay you back by the time you exit.
•   Badly timing your investment exit. I understand the need to buy real estate and sell it as quickly as possible. After all, every month you are making a mortgage payment on the home. But in investment terms, it is often better to hang on to a property. There are added gains, tax benefits and equity. If you are smart and purchase at the right time, the appreciation of the property value could be quite nice.
•   Taking the short-term view. Don´t expect you will get rich quick. Plan for the long term and continually assess the market conditions and risks.
•   Ignoring advice. 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, both for your own deals and to assist with financing for prospective buyers. In the remodeling and maintenance segment of the business, the team includes a plumber, an electrician, a roofer, a painter, a heating and air conditioning, or HVAC, contractor, a flooring installer, a lawn maintenance service, a cleaning service and an all-around handyman. You can't build a business as an investor if you're spending all your time fixing leaky faucets and putting up ceiling fans.
•   Buyers Exuberance. Poor analysis can see you paying too high a premium.  Set your price ceiling based on the returns you seek.  If the price exceeds your range be prepared to exit the negotiation.
•   Misjudging cash flow can force an early exit. If your strategy is to buy, hold and rent out properties, you need sufficient cash flow to cover maintenance. "People think they can get a property manager but many have never interviewed a property manager and have little idea about how they work. Most managers, for example, are reluctant to take on one single-family home or a duplex and fees of 7 percent to 10 percent of the monthly rent are common.  It's not uncommon for a property to sit on the market for 90 to 120 days before it's leased.. Meanwhile the owner has to pay the mortgage, the taxes, the insurance, the cost of advertising and homeowner or condo association dues. If the owner hasn't budgeted for that, an asset can quickly become a liability.
•   No portfolio diversification. This will leave you overexposed if your sector underperforms.
•   Underestimating the investment required.  Your business case should err on the conservative side - investors should double the amount of time and money they think it will take. If they can still make money then and they might be able to rent it out, it's a good deal.
•   Underestimating the risks. When it comes to investments, you aren't going to always win. When you calculate cash flow, appreciation, loan reduction and tax benefits, having a negative cash flow isn't necessarily bad. In the short term, you can have negative cash flows. Remember, long term. Whether you are looking at your first home, or your fifth, you need to stay committed till the end. You have to keep your investment goals in mind and stick with your plan. Write down your goals and continually monitor your performance.
•   No back-up plan. 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. For example, if plan A is to rehab the house, put it on the market and resell it, then plan B could be to offer a lease-purchase to a buyer. Plan C might be to hold the house and rent it out. And as a plan D, there is the wholesale option, which would involve selling to another investor at a below-market price. Hopefully, you'll still make a profit, but at the very least, you'll cut the losses you're taking every month in carrying costs.
 Good luck!

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PropertyExpressCRM is a property consultancy that provides insights and advice to property managers, real estate investors, first home buyers on a range of subjects including property invesment strategies, landlord management, business development.