Twelve Investor Mistakes You Should Avoid

Successful investing is about avoiding costly mistakes. Real estate investment has many positive factors such as positive cash flow, depreciation and significant tax advantages. However, if you ignore a few basic rules, real estate investing can become a big headache.

You must do your homework to be successful in real estate investing. You cannot and must not rely on your instincts or gut feelings. If you do, you may be asking for trouble. Take the time and effort to learn about your current market and its condition. Find a good real estate professional to assist you in avoiding twelve common mistakes made by real estate investors.

1. Failure to plan for your specific needs.
Closing a real estate investment includes money, tax benefits, appreciation, down payments and property management. You can save yourself a lot of time and money by working closely with a professional real estate agent.

2. Failure to double check the numbers.
Although many claim a high return rate on a real estate investment… buyers beware. Talk is sometimes cheap. You must do your homework on every potential property. Check and double check everything. Get the history of the rents, payments, taxes, deposits, expenses, etc. A good agent can act as an insurance policy for you to make sure every aspect of the property is examined in detail.

3. Becoming emotionally attached to a property.
Never become so emotionally attached to a property that you forget this one point: If the property does not create the potential for generating a profit, you will lose money. Ask yourself how much do you have to invest in the property? How will you handle evictions if your tenant doesn’t pay? Who will manage the property? Profitable real estate investing requires a hands-on business approach.

4. Avoiding negative cash flow.
It’s simple. Avoid properties that are potentially large negative cash flow siphons. When you have a property that has more “out go” than “income”, it will drain your capital quickly. The result is frustration and stress as long as negative cash flow continues. Too many beginning investors expect continuous appreciation in value and positive cash flow. That does not always occur. There will be ups and downs. Are you prepared for them?

5. Failure to do a professional home inspection. Always have a professional home inspector check out a potential property. A professional home inspector will look for all types of current and potential problems in the property. He will examine the structure, pest problems and other problems most people will overlook. Let me emphasize this again… Never purchase a real estate investment property without getting a professional inspection! A few hundred dollars up front can save you thousands of dollars in future profit.

6. Under-insuring the investment property. An investment property is just like any other property. It carries liabilities that you must address. You will have tenants, cars, parking lots and other types of property liability. Make sure you have enough insurance to protect you from these liabilities. Consult with a good insurance professional to help secure your investment.

7. Review and approve every document carefully. You may think the paperwork will never end. There are such papers as building permits, zoning laws, lease and rental contracts, inspection reports, title polices, etc. The list goes on and on. Remember, the reason you have these documents is to protect your investment. If they were not important or necessary, you wouldn’t have them. A good full time professional real estate agent can help you review and approve these documents so that nothing gets overlooked.

8. Failure to get a bill of sale of all personal property. The normal real estate purchase contract may not include all the personal properties that are involved in the sale. For example, appliances, furniture, fixtures, drapes, etc. may come with a home. Make sure you have a bill of sale identifying each of these items as part of the purchase price. You don’t want to begin haggling over personal items after you’ve purchased the home.

9. Failure to establish fair rent prices. Turnovers and vacancies are expensive. If you establish a fair rent price and treat your tenants properly, you will avoid too many vacancies. Remember, missing a couple of months of rent cannot make up for a higher price in rental payments. It is better, in the long run, to keep your property rented and your tenants happy. Remember, a vacant property drains cash flow.

10. Failure to qualify your tenants. There is one thing that is more important than everything else when it comes to renting and tenants. Always check out references. Talk to previous landlords, employers, references, credit, etc. Never assume anything. If you do a very detailed review of their past history, you will save yourself a lot of headache, time and money.

11. Failure to get “Estoppel Letters”.

Get an estoppel letter from your tenant. Simple stated it is a tenant’s acceptance letter. The tenants agree that the lease is valid and enforceable and that they will make lease payments as agreed. It is very important that the rental or lease agreement is understood by the tenant and seller.

12. Spending positive cash flow money. Once you become a successful investor, you will have many properties free and clear. Smart investors reinvest their positive cash flow into their property. This speeds up the amortization process and reduces the total interest paid on a property. In turn, this increases your equity and net worth more rapidly.

Owning investment property can be very rewarding, as long as you do your homework. Don’t risk your money and equity by failing to complete your homework on an investment property. By working closely with an experienced full time professional real estate agent, you can avoid many potential problems and make real estate investment a rewarding experience.