succeed in real estate investing. While many of these programs offer a decent education on the subject matter, they often fail to include critical elements that can and will dictate the success or failure of your real estate investments. Here are a few points taken from first-hand experience.1. Buying a home on speculation. Many new investors buy homes based on speculation that the market will increase in value quickly. Never buy an investment property hoping the market will change; make your money when the property is purchased.
2. Using a Realtor or Agent that does not understand investing. Also known as the blind leading the blind. Make sure your agent has some experience in real estate investing. More importantly, make sure they can provide accurate comparables for your local market.
3. Buying an investment property at 90% – 100% of the Full Market Value. Buying an investment property at or close to FMV is not sound real estate investing. Remember, closing costs could run up to 4%. Purchasing a property near 100% FMV could have you upside down on your mortgage.
4. Not having a system for buying properties. You must have a system or formula in place to determine if a potential property is a good deal. Most investors we work with use the MAO formula or something similar. Although you may not use it 100% of the time it’s a great formula for new investors to use as a reference point.
5. Not getting a home inspection. The $150 or so you invest on a home inspection will pay for itself tens times over.
6. Not knowing the local or state laws. Real estate laws are constantly changing. Let’s take Maryland for example; it is now illegal for an investor to directly negotiate purchasing a home from a homeowner in pre-foreclosure. Many states are adapting similar practices and new laws are in the works everyday. Keeping abreast of local and state laws could save you a lot of money and save you from wearing an orange jumpsuit everyday.
7. Not understanding the local market. One key to real estate investing is understanding your local real estate market. A great example is our own Columbus, OH. Columbus’ Downtown and surrounding areas are somewhat rare in that comps are block by block and sometimes only on one side of the street. Make sure you have an agent or Realtor that understands the uniqueness of your local market when looking for comparables in your area.
8. Trying to be cheap, cheap, cheap. It’s OK to watch your budget closely but trying to cut corners will only lead to more money be forked over in the end. This one also taken from experience.
9. Not knowing when to use an Architect. As a new investor I would never recommend doing a full gut rehab; however, if you must, spend the extra $3000 or so, and have a qualified architect design the plans. You’ll save yourself time, money, and a trip to the county courthouse.
10. Taking on a big job as a new investor. As mentioned previously I personally don’t recommend doing a full gut rehab or any big real estate investing project as a newbie. Why? The bigger the job, the bigger the headache. You’ll always run into obstacles even on the smallest project. Don’t bite off more than you can chew as a new investor. Start small and work with a mentor or experienced real estate investor.
11. Using second rate contractors. Oh how we love “The Hook Up!” Unlicensed and uninsured contractors are always ingredients for trouble. Family members are even bigger red flags. Be sure to check your contractor(s) have insurance and check the better business bureau on the company you selected.
12. Not getting references on your contractors. Another sure fire way to lose money. Make sure to get references and ask to see previous work.
13. Not managing your contractors or GC. Depending on your roll you must absolutely keep abreast of the project status and budget. If using a GC or General ontractor, have them report to you daily of the progress and ask for an itemized list of materials purchased. A great way to manage material cost is buy your own materials or set up an account with the local or large hardware stores.
14. Not having any real estate investing knowledge. You should at least know the basics of real estate investing, i.e. wholesaling, short sales, pre-foreclosures / foreclosures, subject-to, lease-options, deed-in-lieu, etc. You don’t have to be an expert, just make sure you understand the concepts.
Questions? Feel free to contact us or visit us at http://www.JasonOpland.com .
