10 Common Real Estate Investment Fumbles
July 7th, 2011 -- by Ryan Tucker
Investing in real estate can be very lucrative. It can provide a way to balance out one’s investment portfolio and provide additional monthly income. But according to this article written by Pat Curry for Bankrate.com, there are 10 traps that can cause you to fumble through your investments.
1. Planning as you go.
Winging it might work for some things, but when it comes to your money, it’s best to formulate a well-thought out plan.
“When I first started investing with my partners, due to our lack of experience at the time, we did not understand how inaccurate and sometimes incompetent our thinking and planning would be,” says Jon Moultrie, owner of Enterprise Realtors and a real estate investor since 2000. “Plan for things to go wrong. Plan for some tenants to not pay on time or at all and know what to do and act immediately. Plan for ongoing and what may seem like endless small item maintenance calls. Plan for cash reserves. Plan for vacancies. Plan for damages. Plan for renovation costs to prepare properties for next tenant. Plan for larger capital expenditures items required for all houses (roofs, HVAC, etc) Plan to watch your business carefully and analyze daily. Plan for the worst and operate daily to minimize costs and maximize profit.”
2. Thinking you’ll get rich quick
“Real estate investing is definitely, ‘maybe get rich, but it will be slow,’” Moultrie says. “Long term mindset is a must. Sure, many people have become wealthy by quickly ‘flipping’ property, but many investors have gone bankrupt that way as well. Buy and hold is my personal strategy.”
3. Playing Lone Ranger
Don’t go it alone. Find a team of professionals (property managers, home inspectors, lender, maybe even other investors) and build relationships that you can depend on.
4. Paying too much
“As with any investment, you make your profit when you buy – do not pay too much,” says Moultrie. ”If it isn’t a ‘killer deal,’ walk away. And finally, always remember: cash is king.”
5. Skipping homework
This is your money and financial future we are talking about, so take the time to educate yourself about the industry. Go to conferences. Join a real estate association. Network with other investors and ask a lot of questions.
6. Ducking due diligence
Before you buy, study the market and the neighborhood condition. Get a good home inspection. Crunch some numbers. Do you feel confident you can make a profit? Find out the real data before you sign the contract.
7. Misjudging cash flow
“If I could go back in time, I would make sure that the monthly cashflow that is being produced by each property was higher,” Moultrie says. “Cashflow allows the investor to execute the plan properly.”
8. Lowering the volume
Once you feel confident with your knowledge of the market and understanding of real estate investing, start to increase the number of deals. Having a solid amount of investments will give you a buffer. In case one property is doing poorly, you will still be getting a profit from others.
9. Painting yourself into a corner
Come up with an exit strategy… and then come up with three more. Don’t get stuck with a property if the market goes south. Have a plan for selling/leasing/wholesaling the property.
10. Miscalculating estimates
See above question about doing your homework. Calculate how much a property will cost you in terms of rehabbing, renovation, etc., and then double that cost. If you can still make a profit, then it’s probably a good investment choice.
What about you? What investment fumbles have you made? What did you learn? Share by commenting below. And if you are interested in getting started with your first (or tenth) investment property, visit our real estate investment division, Invest in Memphis.
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Tags: Enterprise Realtors, Jon Moultrie, Mistakes to Avoid in Investing, real estate investing, real estate investing fumbles