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Three Common Mistakes New Investors Make - And How To Avoid Them
By Sheila-Farragher-Gemma
Success in real estate investing requires a commitment to keeping emotions
out of the picture. Anyone who has plunked down hard-earned savings or
leveraged their good credit to fund a real estate investment, however,
understands the challenge of staying detached.
When you have a lot to lose, it's difficult to keep your feelings out of
the deal. Ironically, it is for this very reason that you need to be
unemotional. Three mistakes that many new investors make are:
- Looking at prospective properties as prospective personal
residences.
I recently viewed a property with a friend who was looking to invest. The
property was on the fifth floor of a building with no elevator. She
immediately decided against investing, even though she would potentially
reap a 10% return on her money.
* Next 37 17 investors only!
When I asked her what turned her off about the deal, she said that she
would have a problem with the stairs. She was picturing the place from the
perspective of a person living there. Another woman in our group scooped
up the property and has been delighted with the return.
Savvy investors often buy property sight unseen. The only thing they are
concerned about is if the deal works in their favor financially. They
don't get caught up in the same emotions they may experience when buying a
property in which they want to live.
- Getting scared off by the prospect of doing work on properties.
The prospect of work on a house can create another emotional pitfall and
scare off a rookie investor. When a property requires reconstruction or
significant repairs, these investors often think they need to rehab it to
according to their tastes. Thus, emotion enters the picture again and the
property becomes a project that looms large and expensive in their minds.
But it's often smarter simply to make the property clean, functional and
resalable.
Sophisticated investors view properties as investment vehicles and focus
on how they can make money off them. These investors will pay a
professional to inspect the property and estimate what, if any, work needs
to be done.
- Making bad purchases just to get some deals under their belts.
Newer investors often buy based on a misguided hope that the market will
improve or keep improving. There is a well-known saying in real estate
that you need to make your profit when you buy, not when you sell. It's
true.
To be successful, you need to analyze the numbers and think about the
worst-case scenario. Ask yourself this important question as a litmus
test: "If the market were to stay the same or maybe dip a little, would
this still be a good deal for me?"
If you are new to the real estate investing world, especially the
foreclosure market, it's important to do your homework on properties and
analyze all the numbers. You also need to be ready and willing to jump
into the market when your research supports that decision.
Some of the basic tools you need to jump into this exciting market
include:
- some initial investment capital or a means of obtaining it
- strong knowledge of the local real estate market and the specific
neighborhood you're looking at
- good people skills to negotiate deals, manage properties and work
with contractors, distressed owners and industry professionals
- the ability to do or contract out repair work
- a strong relationship with a property inspector who can accurately
assess a property for you
The general recipe for success involves doing your homework but also
heeding your hunches, and having a strong network of people who can help
you before, during and after a deal. Once you've bought a few properties,
you'll be better able to recognize a good deal and grab it.
In terms of your investment portfolio, real estate is always a great tool.
Just buy with your head and not your heart and you will be successful!
Sheila Farragher-Gemma is a co-founder of ForeclosuresMass.
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