Shaking In Your Boots To
Suicidal Missions – Deadly Mistakes In Real Estate Investing, Part 2
By:
Matthew Trainer
Failing to Plan is Planning to Fail
Real estate investment
is an excellent choice for those who want to slowly build up their
personal wealth over a number of years. The return on investment (ROI)
is so much better than stocks and bonds, and the tangible asset of
owning property means that you always have liquidity when you need it.
But, and this is a BIG
but, you have to have a strategy. That strategy involves a
well-thought-out plan that must be adhered to. There is never a week
that goes by anymore without me hearing from a real estate investor
that jumped out there and bought a property, paid too much, had no
exit strategy, etc., etc., etc. Now they are stuck and the
pie-in-the-sky “guru” promises of overnight riches crashed headfirst
into the real world. You MUST have a plan and it MUST be written.
No idea how to get
started? Here’s a very quick rundown of a basic real estate investing
plan.
Start with a single investment property:
This can be either
commercial or rental. You can use the equity of your current home to
finance the new purchase. Starting with one property is a good way to
test your real estate savvy and get comfortable with the process. If
you are considering a rental property, start small with a 2-3 unit
property. Do not purchase an apartment complex on your first one. You
will be totally overwhelmed.
Do a few flips to boost your cash position:
If you want to jumpstart your real estate investment plan, purchase
one or two rundown houses, hire a contractor that you trust to
renovate and remodel the property and then flip it quickly for a
profit. This will leave you with accessible cash to use for other real
estate investments. (More about this in Part 3 of this series.)
Diversify your real estate portfolio:
Once you are at ease
with your real estate dealings, diversify your portfolio. Perhaps add
a commercial property like a small community strip mall with half a
dozen rental stores, or perhaps a small office building. Keeping your
portfolio diversified protects your investments overall. At certain
times, one area will do better than others. Diversification allows you
to have the luxury of selling off dogs that are not performing and
using that cash to purchase new real estate investments.
Watch the market – know when to sell:
As a
savvy investor, you must watch the real estate market so that you know
when to buy and when to sell. Ideally, you want to buy when interest
rates are low and the market is soft. You want to sell when both the
market is hot and you can realize top dollar when you sell a property
or when you feel there is going to be a significant downturn in the
market. If that occurs, it will be more difficult to sell a property.
There is much more to
planning than this but this will at least give you a start. Think of
how you want to progress your real estate investments. How much
property (in either number of properties or total dollar value) do you
want to have at one time, or ultimately acquire.
What is your exit
strategy? You must have one! If you don’t you may get caught in a bind
if you encounter financial problems and need to liquidate assets for
cash. Make sure that all of your mortgages are based on different
terms such as fixed rate loans, adjustable rate loans, balloon
mortgages and bridge financing. This means that at any given time, you
have at least one mortgage that you can close out without penalty.
This gives you the opportunity to pay for your properties outright
once you have the cash, and the interest goes into your pocket instead
of the banks.
The old saying goes,
“If you fail to plan then you are planning to fail.” It’s not the fun
part of real estate investing but you have to do it. Even if you
don’t need outside financing, a written business plan will do wonders
for your success.
Plan to succeed!
Regards,
Matt
In Part 3 of this
series we will discuss common but deadly mistakes made with
contractors.
Get
Part 3, "Get It In Writing!", here
Get
Part 1, "Shaking In Your Boots", here
I have spent over $75,000 on real estate
investing seminars, tapes, books, CD's, DVD's, etc. There is only one
I found that was worth the money. I highly recommend
Nouveau Riche University
above all other
real estate investing education.
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