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Real Estate Investing for Savvy Entrepreneurs: Things to Think About and Mistakes to Avoid

Linda Baumgarten

So, you’ve been in the game for a long time, or maybe you just started and are already making a killing, and now you’re ready for the next big thing. The trouble is, the real estate investing game is always changing, and the Next Big Thing yesterday may be very different from tomorrow’s. As an entrepreneur, you need to be on your toes at all times and always approach your investments with agility. By being willing and able to change as the industry does, you can ensure continued success in the crazy, turbulent business we call real estate.

Whether you’re new to the wonderful world of real estate or have been in the business for several years, you can benefit from knowing the real estate investing fundamentals discussed in this article.

To get started, we’re going to review a few key tips any savvy investor can benefit from knowing:

  • Have patience—the right price will come along.
  • Hone your negotiation skills—you’ll need them.
  • Pay attention to construction costs.
  • Ask questions.
  • Be likable and form relationships.
  • It’s all about one thing: location!
  • Always have a plan A, a plan B and a plan C.
  • Know how long a property has been on the market before you reach out about it.
  • Do your own research, and never just blindly accept information from a seller or agent.
  • Work all available opportunities, and don’t narrow ones based on what the media says.
  • Look for selling points, or unique aspects that the property has that others don’t.
  • Know what new developments are on the horizon. If you don’t, look for them.

 

You also want to think about the market and how it changes. Some key points to consider include:

  • After a bubble, property prices either need to come down or peoples’ incomes need to come up. Have patience, because one or both will happen.
  • There is no proof showing that supply is lower on the coast and therefore big price drops hardly ever happen there.
  • Additionally, the value of homes doesn’t magically drop where employment opportunities abound. However, other factors such as increased competition might play a role in decreased home values.

 

Do’s of Investing

Real estate investing for savviesDo enlist the help of a knowledgeable real estate agent. While you may want to do the work on your own (after all, isn’t that what you’re in the business of), agents have a vested interest in the future sale of a home or property and already have a number of contacts lined up who might be interested in making the investment. They can put you in contact with these individuals.

Do invest in properties close to your own residence, at least in the beginning of your venture. As a new investor, you may not be fully aware with the pitfalls that come with investing in property, which can include but is not limited to vandalism, property damage and crime. By living close to your investment property, you can closely monitor it to prevent any damage. However, if you don’t live nearby, consider hiring a property manager to keep an eye on your investment for you.

Do look into condemned properties, as they can turn out to be worthwhile investments if all electricity, plumbing and internal infrastructure are intact and in good condition. You also want to make sure that all the right permits are in place.

Do get the sales cap rates of a building, home or property. You can usually find this by looking through public forums or by researching sales comps.

Investing Mistakes to Avoid

Failure to plan is one of the biggest mistake that even experienced real estate investors make from time to time. The worst thing you can do is invest in a home and then have nothing set up for it. The more time you take to come up with a “plan,” the more money you will shell out in property taxes, homeowner’s association fees and other costs associated with homeownership.

The best way to avoid falling victim to this, “I don’t know where to go from here” trap is to formulate a plan and to find a home that fits the plan, not the other way around. This way, you approach each investment with a hard number in mind. You know how much you can invest in the property while still making a profit when it comes time to sell.

Attempting to DIY is another crucial misstep that real estate investors make. Most seasoned investors know that playing lone ranger is a mistake, but many new investors assume that the less people involved, the bigger the profit…right? Wrong. The key to success in real estate is building relationships or even partnerships. Team up with at least one good real estate agent, an appraiser, a home inspector, an attorney and a lender. Don’t stop there though and hire one to two full maintenance teams to assist with building repairs and remodels. You need to have contractors on speed dial who can help you at a moment’s notice—otherwise, you may end up spending precious time doing maintenance yourself or, worse yet, waiting for a contractor’s schedule to open up.

Paying too much is another fatal mistake that investors make. Sometimes they pay too much because they really want a property and think they can get more for it than it’s worth, and other times it’s because they fail to do their due diligence. They may negate the home inspection so that they can close faster, only to realize after they pay up that the home is invested with termites and has sever foundation issues. Or, they may fail to research comparable listings because a home is in a nice area, only to learn later on that the neighborhood has been on a slow decline for the past few years. Real estate investors need to research, research and research and more, all the way up until the day the papers are signed and the deal is done.

Working one deal at a time is safe and secure, but real estate is anything but those two things. If you want to make money in real estate, you need to be willing to take risks. This means investing in several properties at any given time. Is doing so a little scary? Sure. But by juggling multiple properties, you can guarantee a continuous cash flow at all times—cash flow you can then use to invest in even more properties.

Not having a contingency plan in place is another way that investors lose out on a huge profit. While most contractors try to be as accurate with their estimates as possible, the truth is that once the walls of a building are busted open, or once a complete inspection is performed, what started out as a $10,000 repair job can quickly become a $50,000 whole-house rehab. ALWAYS set aside money in the budget for the unknowns.

Real estate investing can be fun, exciting and profitable, but it’s also risky and nerve-wracking. If you want to be successful at it, you have to be willing to take risks, be smart and think on your toes. You need to be agile, and be able to quickly move on to Plan B or even Plan C on a moment’s notice. If you can do that, and if you use the tips above, you may just find your pot of gold at the end of the real estate rainbow.

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