Many of the “do’s” and “don’ts” of real estate investing make common sense. It is surprising how many investors routinely break these tenets and live to regret their mistakes. The consequences of breaking these rules can be dire, and financially ruinous.
–Start by using approaches that do not put much money at risk (yours or others). Learn the real estate ropes by putting options on wholesale or short sale property and finding end buyers. Every area of the country is absolutely riddled with wholesale opportunities of every kind and size. Just look for them and start making offers.
–Protect your assets by investing with an entity and avoid keeping too many assets in any one entity. Be scrupulous about following all rules for running the entity legally and with good business practices. The corporate veil can still be pierced in most cases, but if you do not have your assets in your own name you make it less likely that you will be wiped out.
–Carry business liability insurance and umbrella policies on the real estate you own. Be clear that once you start accumulating assets it is only a matter of when you will be sued, not whether. You will make a business mistake, someone will get injured or allege injury in one of your properties, or you’ll have a business downturn that will lead to a lawsuit. It will happen; be prepared.
–Offer too much for your deals. More often than not, the investor who is losing money simply did not buy the investment at the right price. Always leave a cushion in your offer for contingency and for negotiation. You also need to be sure of what the house will be worth when you are ready to sell it. Will prices be the same in 3 months?
–Don’t buy expecting appreciation. There are tens of thousands of real estate investors who failed to learn that lesson and were caught in when the real estate bubble burst. Always follow the real estate and business cycles in the areas where you invest. Get in when you can buy low and sell when you can sell high.
–Don’t buy based on projections or “proforma” cash flow expectations. Always buy based on current, verifiable cashflow. If it doesn’t cashflow now, don’t bank on its cashflowing later.
Just these six pieces of wisdom will keep both new and seasoned investors from a world of hurt.