Mistake #1: Stock market mentality: You'd think after losing $7 trillion in the stock market, people would have learned! Nope, they are making the same mistake, which is assuming that what happened yesterday will happen tomorrow. Nine of ten new investors we meet say they are interested in real estate because they saw someone else make money from the rapid appreciation of the market over the last few years. We hear the same thing with people that want to get their real estate license. But, buying real estate solely for short-term appreciation is often a big gamble! If you buy real estate to hold for fifteen years or more, the chances are that you will come out on top. If you buy a property and flip it in within a year, you'll probably do fine, too. And, despite the risk, many people can intelligently time the "boom" of a local market (or subdivision within a market) and make a profit. But, if you buy a rental property for full-market price with break even or negative cash flow, you'd better have a backup plan if the market doesn't keep going up. Investing is a lot like surfing; if you don't know how to ride the wave, you will drown! So, should you refrain from investing if you think the market has peaked? Absolutely not! You can find bargain-priced properties in every market, even the hottest. You can find low-interest rate financing that will increase your cash flow, so if values drop, you still are covered. You can plan short-term (six to twelve months) because markets rise and fall slowly. And, if you keep a cash reserve for your business, you won't sweat when the market tanks. You know that in the long run, real estate markets virtually always come back.
Mistake #2: Investing blind: You'd think after losing $7 trillion in the stock market people would have learned! Nope, they are making the same mistake--blindly buying real estate based on bogus advice or complete lack of education. Real estate is one of the few investments in which Risk is directly proportional to knowledge. True, it has a higher learning curve than investing in the stock market, but there's no proof that having knowledge of the stock market reduces risk (just ask your mutual funds manager). The more knowledge in investing techniques, financing, acquisition, negotiating and, of course, your local marketplace - the less risky your investments will be. A bargain real estate purchase will generally be a safe investment if the proper turn around time is applied; a bargain stock purchase isn't. After all, who says the company you bought into will be in business next year?
Mistake #3: No cash reserves for Cash Flow Properties: Ask anyone in real estate long term (or any other business, for that matter), and they will tell you the two most important words for survival are: cash flow. In order to stay in real estate long term, you need cash reserves. Buying real estate with nothing down is easy; handling negative cash flow, repairs, and other expenses in the meantime is the trick. In fact, if you can handle the bad times, you will always come out on top. Lack of cash reserves puts unnecessary pressure on you to do substandard repairs (which has the biggest impact on resale), If invested in Buy & Holds, you will begin to accept less than qualified tenants, and give into tenants' demands for fear of vacancy. When you have a sufficient cash reserve, you act rationally.
You hold out for a higher sales price.
You hold out for a qualified tenant.
You leave properties vacant rather than accepting unqualified tenants.
You call a tenant's bluff when they threaten to leave.
You take care of necessary repairs and improvements on your properties.
It's an entirely different ball game than operating from a lack of cash. Again, buying properties with no money down isn't hard; it's handling the cash flow. In other words, you can buy real estate without money, you just can't survive in business without cash reserves. Consider accumulating cash reserves before investing in rental or flip properties.
Buy at least One Cash Flow property from SoCal Superior Properties Inc and your flip investments will be far more profitable.
Mistake #4: Being Greedy: Many renovators make an average of 20k on flip investments. It's better to make a little on each property, than holding out for a home run.
Mistake #5: Treating real estate as anything OTHER than a business: People are lured to real estate because of the quick buck it promises. Don't hold your breath--you won't get rich quick. An "overnight sensation" usually takes about five years. More than 90% of the people who take a real estate seminar quit after three months, complaining all the way when they find there is a LOT of work involved. Even with most real estate agents, 10% do 90% of the work, just as any other business. The rest Pay for the leads. Investors are the same and they are willing to pay for the lead but there has to be enough spread to be realistic for all.
Investors trying to go out and do what most real estate agents don't even know how to do with far more years of experience, is risky business. Contract & Recourse Law is not a play as you go career choice. We see lot's of Investors trying to train others. Normally you'll find it just a dog & pony with alterior motives. Everyone is looking for Money & Deals so the hooks are out.
So what's an investor to Do? Get educated. Have a professional in your team for each area of business, instead of trying to be a One Stop Shop in an ever changing economy.
When receiving real estate advice, individuals should always seek their own legal and tax advice pertaining to each persons financial portfolio.