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Real Estate
Investor Mistakes
We provide real estate services to buyers
and sellers in Pennsylvania (Berks County, Chester County, Delaware County,
Montgomery County, Philadelphia, Drexel Hill, Haverford Township, Havertown and Upper Darby) as well as in
New Jersey (Brigantine, Atlantic City, Ocean City, Camden County and Gloucester
County).
Investing in real estate provides many owners with positive cash flow, tax
benefits and the satisfaction of making an impact in others’ lives. Like any
investment, real estate has market trends that, if ignored, can cause an
investor tremendous headaches.
Many first-time investors part with their hard-earned money without taking the
time to study their investment. They rely on traditional trends and gut
feeling. Before you risk your money, take the time to learn all you can about
your market. By aligning yourself with the right professional, you can avoid
these common mistakes and ensure an excellent return on your money.
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Failure to determine
your time needs. Money, capital appreciation, tax benefits, loss of
management, equity pay down and simple pride of ownership are a few of the
things that must be addressed before you make that first investment. A
service-minded real estate professional can be a tremendous asset by taking
the time to evaluate your needs and make sure you’ve got all your bases
covered.
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Not checking out the
seller or seller’s agent’s numbers. Claims of extremely high rates of return
run rampant in real estate investment. Don’t get caught up in a wave of
excitement regarding a property. Check every detail - rents, payment history,
taxes, expenses, deposits, future modifications - everything regarding the
finances of a potential investment. Be certain you are working with a good
agent - it’s like an insurance policy against overlooking all the seemingly
insignificant but very important details.
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Don’t get
emotionally attached, it’s just business. Owning investment property carries
with it a great potential for creating and holding wealth, but you may also be
forced to make potentially difficult decisions. Evictions, re-investment into
the property, and time management all need careful consideration. Real estate
investment is not a “hand’s off” type of business - it will require your
vigilance.
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Avoid negative cash
flow. Property that eats cash every month can drain your working capital
rapidly. This can create stress, frustration and become painful over a period
of time. Expecting constant appreciation and positive cash flow may be
unrealistic for a novice investor. A strain on your bank account may cause
you to sell the investment before the benefits of ownership are ever fully
realized.
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Failure to do a
thorough inspection. Look everywhere! Hire a professional inspector. Ask
the tenants about pest problems, structural damage or recurring problems and
don’t overlook anything. A value-driven real estate professional will help
you find the right inspector and can help you avoid costly mistakes.
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Failing to have
adequate insurance. Investment properties bring liabilities such as tenants,
cars, parking lots, cleaning facilities, property liability - the list can be
both extensive and daunting. Adequate insurance coverage is an absolute
must. Be sure to consult with an insurance professional to protect your
assets.
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Inspect, approve,
and confirm all documents. The list of documents that need to be proofed can
be overwhelming to the first-time investor. Building permits, zoning laws,
rental and lease applications, health licenses, inspection reports, title
policies - the list is long and you can’t risk oversights on any of these.
The right real estate professional will work with you to make sure nothing
gets overlooked.
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Get a bill of sale
for all personal property involved. Many types of personal property
(appliances, furniture, draperies, fixtures, etc.) can be involved with an
investment sale. Be very detailed and know who owns what.
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Charge fair rents.
Vacancies, turnovers and lease terminators are your biggest expenses. Charge
fair rent, treat your tenants with respect and respond quickly to their
needs. It’s a lot less costly in the long run to take care of the little
problems while they are still little rather than waiting. A vacant property
doesn’t make you money.
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Select qualified,
good tenants from the start. You must take the time to check references.
Previous landlords, employers, financial references, credit and judgments are
all vitally important. If there are any questions, do a thorough
investigation. Drive by their previous residence. A little work up front can
save you all sorts of problems later on.
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Make sure you get
estoppel letters. Get letters from the tenants confirming the status of
tenancy. Make sure their version of the rental agreement or lease corresponds
with the seller’s interpretation.
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Don’t spend positive
cash flow. Most successful investors have free and clear properties. Be sure
to re-invest your positive cash flow back into the property payment and speed
up the amortization schedule. This decreases your debt load and increases
your equity, which in turn increases your net worth. Investment property can
be one of the most rewarding aspects of your financial portfolio. Be sure to
be as knowledgeable as possible before risking your money. Do your homework!
Consult with a professional real estate agent and protect yourself from the
hidden troubles that can plague first-time investors.
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Choose your agent
wisely. Working with a full-time professional real estate agent is a must.
Choose your agent by asking questions of him or her. Find out how
knowledgeable they are about houses currently for sale in your price range and
also of houses that have recently sold. Does your agent work with a good
lender that has the reputation of excellent service and low rates to assist
you in obtaining financing? Does your agent ask questions of you in order to
have a full understanding of what you are looking for and to help you to find
the best property for you?
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