Do's and Don'ts in Real Estate Investing
After years of experience with both personal investing and working with investor I have gathered these dynamic list. I will keep updating this list as I learn more.
- You investment assumptions
- Liquid real estate is better
- Only positive cash-flow (for the most part)
- have a plan: entering and exiting strategies
- Stay away from niche/odd investments
- Check (background) the people you are working with
- Practice Safe Investing
- Land/Lots are tricky
When creating your investment plan make some assumptions. Now it time to question your assumption. Ask your self what happens if any of the assumption you have made doesn’t work and see how it affects your investment. When one assumption doesn’t work ask your self what’s the alternative/s to this not working.
Liquid real estate is better
There many types of RE investing. The more liquid the investment is the easier life you will have in case you want to sell the property. The greater you potential buyers pool the better you will be.
Only positive cash-flow (for the most part)
As a rule of thumb: This is a tricky one. The less money down you put the worse your cashflow and vice versa. Further more, the more down your putting the less your returns will be and more of your own money. So what’s the sliver lining here? There isn’t a rightor wrong one. There’s is only what’s right for you.
Let’s run a quick scenario here. Let’s say you put 10% down at first. Most likely through the months/years you will need to pay the difference between the rent and the missing cash to cover all expenses – let’s say it is $300/month $3600/year. My first question is “do you have these $300 to pay on a monthly basis?” if you do – great, if you don’t – problematic. Now let’s take it one step further. Let’s say you do have the $300 to pay every month, and let’s say that after 2 years you’ve lost your income and cannot pay this $300. You are now risking your entire investment. If there’s place to see it then you’re good, but if there isn’t – problematic.
Have a plan: entering and exiting strategies
How to buy is normally simple. The difficult part is finding the property and making a decision. As for selling – it’s a bit different. Should you be a short-term or a long-term investor you should ask your self what methods will you take to sell the property and who will you sell it with.
Stay away from niche/odd investments
For me niche investment are properties that require special skills to sell or are complicated to sell. Let me give you an example. about 3 years ago I bought a high-end vacation condo in an excellent area of Florida, in a waterfront community. When I started looking into selling it after about 2 years I realized that I’m need to depend on the local team that sold me this property. At the time there was nothing wrong with the team (by now they are already out of business) but I needed them to sell it. Calling up a local Realtor was just not realistic. Needless to say that had put me in a tough position.
Check (background) the people you are working with
Always, always check the people you are working with. Google them, ask for referrals, look them up on BBB.org and possibly run a paid background check on them or their company – it’s inexpensive and well worth it. I wish I have done so in the past.
Practice Safe Investing
Here are couple of things I’ve learned the hard way.
A contract is just a contract. Read it and make sure it makes sense to you. If reading legal docs is not for you – get an attorney to do it for you. I have seen an unnegotiable contract. If after a discussion with the contract other side there are some clarifications – add them to the contract in writing.
Use escrow. If you are making a payment, mostly towards future transaction, use an escrow. Have the many secured by a 3rd party.
Use title insurance to make sure your transcription is properly recorded – this is your biggest assurance.
Land/Lots are tricky
Never say never. The problem with land/lot is that there a great deal of work that needs to take place before you can start improving it. I have been involved in the purchase of lots in areas that had many lots available. When time came to sell the competition was high and to develop the land to a more progress stage required time, attention and $$$. Be extra experienced when dealing with land/lot.