Increase Your Odds of Real Estate Investing Success!

13 November 2018
Joshua Chisvin

If you can understand what causes people to lose money in real estate, then you can take preventive measures to ensure it doesn’t happen to you.

No, while no investment is without risk, smart investors understand there are certainly precautions that can be taken to mitigate that risk. To do so, start by avoiding the common mistakes I’ve outlined here.

(Believe me, avoiding them will help get you well on on your way to growing wealth through real estate.)

DON'T BET ON APPRECIATION

Those who lose properties to foreclosure often cite this as a top reason, if notthetop one. Simply put, amateurs buy a house assuming it will go up in value and they can sell it later. Professionals? They buy undervalued properties in solid locations that produce positive cash flow. This gives them the flexibility to exit the deal when it makes financial sense to do so. When you bet on appreciation, don’t have positive cash flow and don’t keep accurate reserves, you are gambling on the market continuing to rise to bail you out from a risky investment. Clear enough?

DON'T BUY IN BAD NEIGHBOURHOODS

You already know the first rule of real estate: location, location, location. Still, some can’t resist the temptation to buy a questionable property in an area that seems too good to be true. Well, when it seems too good to be true, guess what? It usually is. While homes in undesirable locations can look great on paper, the reality is they almost always look better in theory than they’ll be in practice. And when you buy in an area where good tenants won’t want to live, you’ll be forced to rent to less than desirable tenants. They have lower credit scores, less reliable income streams and worse rental histories. All things told, the cons just won’t justify the pros.

DON'T FAIL TO EDUCATE YOUR FIRST

Know what you’re getting intobeforeyou commit to purchasing a property. Not after. Remember, certain decisions like buying a property can’t be taken back once they are made. The time to realize you’re not prepared — or it’s the wrong deal — is prior to passing the point of no return. So, start educating yourself now — before you’re committed — then use that information to help you make the best choice possible.

DON'T FOLLOW THE HERD

I find untold bad decisions get made when you base those decisions on what others are doing, rather than on sound financial principles. It may be tempting to follow the herd, yes, but understand it is a false sense of security. Just because everyone else is buying doesn’t mean you also should. In fact, it may be the opposite.

DON'T NEGATE YOUR CASH FLOW

If you want to make money in real estate, you should plan on holding an asset for a long period of time. Good things happen when real estate is owned over the long haul. Loans are paid down, rents tend to increase and the value eventually goes up. The number one problem preventing investors from winning the long game is buying a property that loses money every month. Don’t buy real estate assuming the price will go up and you can sell it later. Nobody knows what the market is going to do.

DON'T PLAN ON DOING THE WORK YOURSELF

All too many people have assumed they would save on a deal by doing the rehab work themselves, rather than paying someone else. Sure, while you might be able to pull this off, it’s a mistake to assume you can pay too much for a property — or not have enough in reserves to pay for the work — simply because you plan on doing the work yourself. You don’t know which direction your life will take, what time you’ll have later or what unexpected problems will be uncovered once you start.

SOURCE: Forbes

  Real Estate