5 Biggest Mistakes of Real Estate Investors: | Archers Homes

Here in the Bay Area, there?s no mistaking that the real estate market is on a sharp rebound.?Thousands of buyers and investors have taken notice.??Since plenty of stories abound about investors making big money on real estate in the past few years, many first-time investors are diving in.??As I specialize in working with property investors, here are the top five mistakes that I see investors make:

1. ?Buying properties in unfamiliar markets

This is a very common mistake, one that speaks to the low-hanging fruit nature of novice investing in any asset class.??If you don?t know where to start, you tend to go with whatever your neighbor or somebody on TV tells you.??It?s not a good or bad idea ? it?s just higher risk when you can least afford it.??The headlines are always attractive, but if you don?t know the market, you don?t know if you?re getting one of those advertised deals.??You can be in the exact same market as the winners and end up in a dump that happens to be on the wrong side of the street.

2. ?Underestimating expenses

Real estate is a complex asset class.??That complexity offers opportunities for the experienced and pitfalls for the novice.??As an investment category, there are a large number of possible expenses that a first-time investor would not be aware of or know how to properly calculate.?Just on taxes alone, there are transfer, supplemental, and property taxes.??On the often touted foreclosure deals, there could be hidden liens, litigation, or undisclosed structural issues.?Usually, these expenses are learned through expensive trial-and-error, which is the process that real estate brokers and salespersons go through on a daily basis to stay current.

3. ?Accepting negative cash flow

Less common than in the boom days, first-time investors still think that investing in pricey California means they have to accept no cash flow and even put money in to support the investment.??These investors hope that appreciation returns will offset the negative cash flow and bail out the investment in the long run.??Often, this means they?re investing in ?good? school districts and in nice single family homes.??While it is possible to make money in the long run with this approach, the overall return would be less than that of a positive cash flowing property, which would also appreciate.

4. ?Underestimating the competition

Unlike competing with other home buyers, competing with property investors is a whole new game.??Many property investors do it professionally and they know all the tricks of the trade.?They?re also much more prepared with their finances and have a financing team??So, just because a property is a distressed short sale or bank-owned unit, it doesn?t mean you can instantly capture the discount by bidding at the below-market list price.??Winning deals, especially in the currently hot real estate environment, take effort and a bit of old fashioned cunning.

5. ?Going without an Investment Realtor

This is probably the most serious mistake.??Yes, it seems elementary to buy and rent a property, but that?s just the basic concept.??Real success in property investing depends on proper execution on every step of the process ? understanding market conditions, finding the right deals, winning the deals, making the necessary improvements, getting the right tenants, and managing the property.??If you go on your own, it?s very easy to make a mis-step along the way.??Even if you work with a regular buyer agent, you?re still left with figuring out how to deal with the property after you?ve purchased it.??Regular buyer agents just want to sell you the property and have no accountability for delivering the rental returns.??It?s very easy to sit six months or more on a vacant property.??Flipping property is a whole new challenge on top.

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So if you?re considering becoming a property investor, make sure you?re educated on these issues or have the right guidance along the way.??If you need help in the Bay Area or have any questions, drop me a line (650-275-2594) or send me an email (michael@archershomes.com)

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Source: http://www.archershomes.com/2013/01/5-biggest-mistakes-of-real-estate-investors/

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