With the real estate sector booming, the main investors in the street are getting into the fray. Unfortunately, too many of them are poorly equipped, uneducated and fall over and over again in the same traps. Here are 4 common mistakes that real estate investors make. By becoming aware of these common pitfalls, you can navigate the new real estate boom knowingly and watch your wallet fly away.
Trap 1 real estate investor – Buy a property for the wrong reason
When we really come to the point, there are only 3 ways to make money by investing in real estate.
1. Rental income exceeds your expenses and generates a positive cash flow for you each month (cash flow).
2. Tenants will repay your mortgage (growth of equity).
3. The property is about to gain value with time (surplus value).
The ideal property is one that is very ready to offer all three. Unfortunately, far too many investors buy with only the third reason (appreciation). With inflation in mind, history has shown us repeatedly that this is a very high-risk game because it is speculation and not investment. Unless you are happy playing or speculating, or if you know how to create value by redeveloping, renovating or reallocating the use of a property, you should never buy to be appreciated.
Focus on looking for buildings that generate enough rent to cover monthly mortgage payments, taxes, insurance, maintenance and building management and, ideally, leave a little on the account.
If you are able to systematically focus on this formula, you will find that you are much less vulnerable to market volatility and you will not spend the benefits of your good investments to cover the losses of your bad speculations every month. .
Trap of the Real Estate Investor 2 – Chasing Deals
Just like a bloodhound, most investors leave very targeted with a clearly defined destination in mind … until they see a squirrel.
Suddenly, all the attention is directed to the squirrel and this one no longer worries about his plan.
This is what seems to happen to a lot of investors. Either they do not have an investment plan to follow, so they are always looking for squirrels or they allow themselves to be easily distracted from this plan when a new squirrel appears.
If you stick to a well-thought-out plan, based on the fundamentals of real estate investing (buying for cash in areas with good economic fundamentals), instead of looking for the last destination, you can earn more money, make less effort and minimize the risks of your investments dramatically.
Real Estate Investor Trap 3 – Do not weigh the risks and benefits
All I&39;ve heard from someone, is their return on investment. Although there is no doubt that it is a critical variable; Nobody ever seems to consider their return on time. Time is money, so it is imperative that you value performance as well as performance. These two elements constitute your return on investment.
This is an important number to consider, but this is not the first thought I have when I evaluate an investment. Instead, I ask:
– What is my return on my time?
– So, what are my returns relative to my risks?
Time is your most precious resource. You can not create more time. You can create more money. The money for investment is unlimited when you know how to raise it. And making money is not so difficult – it&39;s hard to keep it. That&39;s why your greatest consideration in a transaction is the time you have to invest and the risks you must assume to get the return.
When we focused solely on the return on investment, we had to deal with a lot of risks, which took a lot of time for management and maintenance. However, we have not balanced risks and returns. The cash was huge – so the opportunities seemed big.
Unfortunately, high-yield contracts tend to take a ton of your time and energy to manage all the risks. And if something goes wrong, you will soon find that your funds are exhausting too.
Many real estate investors do not think well of the risks and benefits before signing a new investment agreement and end up being unable (or reluctant!) To expand their portfolio due to a property problem or both .
Real Estate Investor Trap 4 – Trying to do it alone
As a new real estate investor, it is tempting to look for interesting offers. Like a dog distracted by a squirrel, you can find yourself in a totally opposite direction to where you were going when you started. Real estate investing should not be exciting . If this is the case, you are probably wrong or you are taking huge risks that would deserve to be huge, with huge benefits.
Personally, I would hire a real estate investment coach to help me with this part. Since we work with good coaches, we work less and earn more. You can save time, stress and money by recruiting the right experts on your team. But no matter who you work with, you should get help for this part. Sit down with your coach, an experienced investor or at least someone specializing in helping real estate investors in financing their operations, to develop your master investment plan. Then run this plan with your accountant and even your lawyer. Get feedback from key members of the team. Next, stick to this plan with a focus on minimizing time and risk investments and maximizing monthly cash flows and future potential.
A good option to consider is to join an association. There are local and national groups and associations that meet and exchange ideas, news, knowledge and support on a regular basis. Associations are full of coaches, mentors, and tools that can dramatically reduce your learning curve.
The boom years of the 2000s are behind us for the moment. However, the bust years are too. The new boom is starting now and experienced investors are gearing up for huge returns.
If you avoid these four mistakes when creating your portfolio, you will get closer to your goals much faster and easier!