We've all seen articles and TV shows show us how to succeed in real estate investing; however, sometimes it's more important to know what's NOT being said. Here are few points taken from from first hand experience.
1. Buying a home on speculation. Many new investors buy homes based on speculation that the market will increase in value quickly. Never buy an investment property hoping the market will change; make your money when the property is purchased.
2. Using a Realtor or Agent that does not understand investing. Also known as the blind leading the blind. Make sure your agent has some experience in real estate investing. More importantly, make sure they can provide accurate comparables for your local market.
3. Buying an investment property at 90% - 100% of the Full Market Value. Buying an investment property at or close to FMV is not sound real estate investing. Remember, closing costs could run up to 4%. Purchasing a property near 100% FMV could have you upside down on your mortgage.
4. Not having a system for buying properties. If you can't determine if it's a good investment, is it a good investment? You must have a system or formula in place to determine if it's a good deal. Most investors we work with use the MAO formula or something similar. Although you may not use it 100% of the time it's a great formula for new investors to use as a reference point.
5. Not getting a home inspection. This one has personally cost me a ton of money when I started investing. The $150 or so you invest on a home inspection will pay for itself tens times over.
6. Not knowing the local or state laws. Real estate laws are constantly changing. Let's take Maryland for example; it is now illegal for an investor to directly negotiate purchasing a home from a homeowner in pre-foreclosure. Many states are adapting similar practices and new laws are in the works everyday. Keeping abreast of local and state laws could save you a lot of money and save you from wearing an orange jumpsuit everyday.
7. Not understanding the local market. One key to real estate investing is understanding your local real estate market. A great example is Baltimore, MD. Baltimore's a rare city where comps are block by block and sometimes only on one side of the street. Make sure you have an agent or Realtor that understands the uniqueness of your local market when looking for comparables in your area.
Questions? Feel free to email me at firstname.lastname@example.org