14 Ways To Fail At Real Estate Investing

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 .

More Americans Become Landlords As Rents Rise

 

With home prices retreating from fever-pitch highs, a new breed of real-estate investor is eclipsing the speculator: the landlord.

More Americans are hanging out “for rent” signs. Some were forced into the business after buying investment houses or condos at top dollar during boom times that they now can’t sell. But many are discovering their inner landlord on purpose, often buying properties well below prices from a year or two ago.

For the first time in several years, rents are rising in many places, in part because the subprime-lending crisis is making it harder for people with marginal credit records to secure mortgages, increasing rental demand.

At the National Association of Residential Property Managers in Virginia Beach, Va., membership in the past year has increased by more than 20%. In Nashville, Tenn., Wilson Group Real Estate’s property-management-services arm has nearly doubled to 250 clients in the past year, thanks to the landlord boom.

Getting into real estate remains relatively easy. Despite the difficulties in the loan market for higher-risk, subprime borrowers, there are lots of financing options available for investment real estate, assuming your credit is good.

Keep in mind that “you’re buying an income stream, not a pretty house”. A house will attract only so much rent. If you overpay, you can raise the rent only so much before your property starts sitting vacant.

The first step is to assemble a small team of pros, especially a real-estate agent knowledgeable about local rental rates and other issues that will impact your bottom line. Consider retaining a local property manager (who may just be your real-estate agent or his/her company in many cases) who can help you navigate ordinances, set a fair rent, find tenants, arrange lawn services and handle worst-case scenarios, like evictions.

The downside: Managers tend to charge a month’s rent upfront and about 10% of the rent thereafter.

Property Managers

Property managers are listed in phone books or online. You will want one that has been in the business full time for years. To track rental finances, many landlords use Quicken Rental Property Manager or similar software.

Running a credit check is a must! Landlords can sign up for services from providers such as Fidelity Information Corp. (gofic.com) to get these reports for small fees.

Key Questions

Insist on references from previous landlords. Key questions to ask: Did the tenant pay on time? How much damage was done to the property?

A typical mistake is to under-budget for repairs. Keeping the home in good condition helps attract quality tenants. When you’re a landlord, you’re in the retail business, not real estate. You don’t want to lose your good customers.”

Insurance is another concern. An injury to your tenants or their guests on your property could mean a lawsuit. A good insurance agent and lawyer can help determine how best to structure your business to limit your personal liability.

Where’s My Accountant?

Rental real estate also comes with a dizzying array of tax breaks, deductions and write-offs, perhaps more so than just about any other investment. You have deductions for interest, insurance, repairs, even for the mileage accumulated driving to the bank to deposit the rent checks. It is worth the expense to hire an accountant with rental-income expertise.

Overall, aim for an annual return of at least 10% to 12%. Remember, you can earn 5% in risk-free U.S. Treasury bonds, so you should make more to compensate for the headaches of being a landlord, such as the Christmas Eve phone call informing you of a broken toilet.

Tips For Investing In Foreclosed Homes

Countrywide Financial reported Tuesday that borrowers with good credit are struggling: Payments were at least 30 days late on 4.56% of its prime home-equity loans in the second quarter of 2007. The delinquencies come on the heels of a record number of foreclosures.
 

WHAT TO DO:Investing in foreclosed homes can be profitable, but novices need to tread carefully. Generally, you can’t inspect homes prior to auction — a home in need of major repairs could negate a bargain purchase. Some may come with hidden liens or utility bills to pay. State and local rules vary, so understand the process before bidding and know the existing homeowner’s rights. Investors can find foreclosure listings at the county court clerk’s office or sheriff’s department. For a fee, Foreclosure.com and RealtyTrac.com provide up-to-the minute listings. A title-search company can help determine if there are any outstanding liens on a home. Also, consider negotiating directly with lenders to buy bank-owned homes. Countrywide, among other lenders, lists online homes it’s selling.

If you’re interested in learning more about investing in foreclosed homes, please send us an email or give us a call at 614.332.6984.