subject: How to Instantly Improve Your Real Estate Investing By Avoiding These 10 Pitfalls [print this page] How to Instantly Improve Your Real Estate Investing By Avoiding These 10 Pitfalls
Many seasoned investors are probably aware and perhaps have even been involved in investment money loosing property situations such as:
Buying on spec and the project is never built,
Buying and renovating properties that cost too much and not have them sell because the price is too far above market price.
Lost property due to unforeseen accidents fire, E.g.
So how can you avoid these pitfalls and the unforeseeable; what are these common denominators or areas if you will. Over the years these are the ones that I've seen occur and experienced the most through repairing, upgrading and totally renovating the building. There are many more that could be added but for arguments sake lets say that these are the worst ones.
Depending too much on what your real estate agent tells you as far as a resale value. This probably translates into overpaying for the property to begin with. You need to do your own due diligence as well too know the Fair Market Value. If you are going to be doing substantial repairs or renovations you better know what the value of the completed project will be once completed. You may find that the project has priced itself out of the current market! Make sure that you study the immediate area for similar types of properties that match yours and that have been renovated and resold!
Incorrect costing of your repairs or renovations costs. You need too be absolutely sure of your numbers; materials, labor including the budgeting of an extra 10%. There are always surprises! You should get 3 to 4 professional quotes with their scope of work descritions. Go over the scope of work with the contractors to be sure you both understand and are in agreement with the descriptions, costs and timelines. Make sure you thoroughly inspect the property. It means being side by side with your inspector and asking questions on anything that draws your attention or bothers you in the slightest way. Remember inspectors don't move furniture and they don't make holes in the walls.
Under insuring the value of the property. There have been cases where houses have completely burnt down during full scale renovations, sometimes accidentally and other times purposely burnt down. I've seen it with my own eyes up front and close. If you're not insured on the total value built new to today's building codes it will cost you perhaps $50,000 to $100,000 maybe even more depending on the size and luxury built in. This is a situation I lived personally where friends paid $85,000 for their home 3 years prior to the fire which completely burnt their house down to the foundations. The consequences were startling; the $85,000 house cost $145,000 to rebuild. This was due to the changes in the building code over time. Fortunately for them they had the right kind of insurance to at least have their home rebuilt, better built and with more amenities.
Attempting to remodel the property yourself while living in it. This kind of situation can cloud the original intentions you had because it becomes personal. People get attached and end up investing in upgrades that are not really required and far to expensive for the intended end result. Remeber what your original strategy is, to achieve a very good profit on the reselling of the property. So stick to the plan, your scope of work and of course your budget!
Over estimating the finished value of your renovation and repair upgrades. Value is the money other people (the Market) perceive and are willing to pay for your investment. I you just finished renovating a $200.000 property and want to sell it for $300,000 and the market price in the area is $235,000 to $250,000 you will wait a very long time before you sell. Don't try to re invent the wheel, know your market and do the numbers.
No Investment Strategy taken into consideration for your money and the time it takes to turn around the property. If you're taking 6 months at a time to renovate and upgrade your properties to resell them it means you'll probably succeed at one maybe one to two projects in any given year. This maybe alright if that is what you are comfortable with. However with better planning you could double and maybe even triple to five or six properties a year by not living in them thereby reducing the project timelines. Remember time squandered is money lost as well, don't forget you're paying interests and holding cost all the time you're renovating them!
Don't fall in love with the bricks and the mortar, the neighborhood schools or amenities it's only a house. If you are buying in upscale neighborhoods this will automatically add a premium in price as well, this doesn't automatically mean you will make a fortune on the resale. Remember your investing in the property to maximize your profits either by flipping it after substantial upgrades and renovations or holding it long term for rental income. If you hold for the long term will this investment justify the required rent to give you at least 15% cash on cash return?
Once you've crunched the numbers and know that it is a viable project don't hesitate making the investment! Timing is everything, timing is opportunity as well. Second guessing in good markets present excellent opportunities for the seasoned professional investors to jump in and scoop it up from under your feet and making a terrific profit on it. Remember to make money in real estate you have to be invested into the game.
Don't be caught up in you have to know it all, the education and courses are important and a good thing but action & timing create the opportunities. However if you stay on the sidelines observing the game what good is the education, it's not a game of monopoly? There is always a profitable property investment to be made.
Yes it is true that you can get hurt when you don't understand the fundamentals of investing. However that's why you're here reading this blog, connect yourself to the right people, like minded people, experienced people especially. This way you can shorten your growth curve and probably pain from mistakes due to inexperience. Find out more on how to conduct in depth due diligence and the key steps to investing.
We invite you to study the Zen Investor way. Follow Marie-France with her 10 years of professional investing, her experience, and her methodology for finding the right investments. Marie-France is located in Montreal, Quebec, Canada is very well travelled with investments in Canada, Europe, Brazil and Panama.
