The 5 Things You Should Never Do When Investing In Real Estate
Undeniably, one sector that has not ceased in gaining interest from investors is the real estate industry. For almost over half a century now, people consider it the ideal investment vehicle. How much you make and how fast you make it in real estate depends on how much tact you use in purchasing your property.
Many steer away from real estate for the fear that it is only the reserve of the wealthy or fear due to the slow market. The thing is even the rich started from an original zero point and so can you. Investing in real estate though challenging, as many know it is, has valuable rewards. However, perhaps you have seen many companies fold or an individual go bankrupt all in the name of real estate.
The sad truth is that real estate did not drive them to such areas of financial crisis, but their bad decision in the game did. Like a game of poker, you have to make informed moves and make them strategically. It does not matter how you get into the game, as a direct investor through REIT (real estate investment trusts) or REIG, groups or through a company; it pays to play this game. Avoid the following pitfalls and you are a sure winner.
1. The poor financing scheme
The knowledge out there on real estate financing is that it will cost you but the little is known on the kind of financing one should get. Unlike the norm when it comes to major investment in real estate the bank should not be your first option. Such an investment is not as simple as getting the mortgage and if you are not careful you could end up paying an arm and a leg in interest rates or even lose the property all together.
Consider creative financing such as the seller carry back, a refinance loan, buying subjected to existing financing and the popular seller second. The benefits of such methods are that you escape the hefty interests and in most cases, the mode of payment is flexible. Even a private lender is an option worth considering before you run to your bank or credit union.
Although the latter are the traditional and considered the safest, you could bite more than you can chew if you do not plan well with them.
2. Poor research
As in every other sector, the marketing is alluring and the competition cut throat, but that is the norm. There is no justifiable reason for going into a real estate investment without adequate information. You would rather spend a month doing your research than a few weeks and end up losing it all. Given the huge investment you are about to make then it only make sense the more the research you should do.
Ask yourself a myriad of question such as:
- Why is the seller selling?
- What is the value of the location?
- What are the building and land laws in the area?
- What is the value and type of surrounding property?
- What are the market potentials in the next years?
Ensure you ask all the right questions to avoid buying a balloon; it is pretty on the outside but has nothing on the inside.
3. Thinking short term
Yes, the return will come in impressively but that does not mean they will come in fast. Think in the long term when dealing with real estate, as at times the market tends to be slow. You will recover but not as soon as you think so plan strategically and do not depend on the returns from this investment until they start coming in.
4. Not calculating the expenses
Although having your own property is highly beneficial in terms of a great cash flow, you need to calculate the expenses as well. Such factors should come into consideration before buying the property to determine the overall value. Now that you are the owner, you have to cater for the repairs, maintenances, renovations and refurbishments when it comes to turnovers. Be prepared for the legal as well and get rid of any loopholes that warrant a lawsuit.
5. Man is not an island
Do not attempt to go at it alone. Many factors may blind you to the truth of a property’s value and you will be hit hard later on. Invest in the knowledge of a good insurance agent, a lands broker, a lawyer, a real estate agent or company. You need to have all your bases covered and get your facts right. Such people are resources and not liabilities!
Brian Taylor is a domain expert with Perth based Stella Settlement agents. Brian enjoys writing posts to help property buyers and sellers in their endeavours.