Once the market starts to rebound, investing in real property also becomes a more appealing idea — either as a career or a great side job. Like any other endeavor, though, there’s a right way and a wrong way to go about it.
Bankrate spoke with established, full-time real estate investors and with professionals, such as bankers, to identify the types of traps into which real estate investors most often fall.
Here’s their consensus on 10 of the most lethal missteps.
- Planning as you go.
- Thinking you’ll “get rich quick.”
- Playing Lone Ranger.
- Paying too much.
- Skipping homework.
- Ducking due diligence.
- Misjudging cash flow.
- Lowering the volume.
- Painting yourself into a corner.
- Miscalculating estimates.
1. Planning as you go. Andy Heller, an Atlanta-based investor and co-author of “Buy Even Lower: The Regular People’s Guide to Real Estate Riches,” says lack of a plan is the biggest mistake he sees new investors make. They buy a house because they think they got a good deal and then try to figure out what to do with it. That’s working backward, Heller says. “First, you find the plan,” he says. “Then you find the house to fit the plan. Pick your investment model, and then go find property to match that. Don’t find the strategy after you find the home.”
The problem is that most people look at real estate as a transaction instead of as an investment strategy, says Doug Crowe, a Chicago-based real estate investor and speaker. “People fall in love with a property,” says Crowe, who is managing director of Springboard Academy, the nation’s only real estate academy for investors. “I say, ‘Who cares about the property?’ I fall in love with a motivated seller.”
The number is the number, and you don’t go above that, he says. The best way to solve the problem is to have lots of activity and make offers on multiple properties. Then you don’t care which one you get — as long as the numbers work out in your favor.
2. Thinking you’ll “get rich quick.” That kind of wrong-headed thinking is fueled by “these self-appointed gurus who have infomercials and make it sound so easy to get rich in real estate,” says Eric Tyson, co-author of “Real Estate Investing for Dummies.” It’s not easy. It’s a good long-term investment, but so is putting your money in a mutual fund, which is a lot easier. “These gurus don’t talk about all that hard work. You have to be smart, you have to be willing to work, and you have to understand your risk tolerance.”
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