5 Common Mistakes Of New Real Estate Investors
Investment for the taking
Published on: Friday, March 26, 2010
Written by: Bill Bronchick
For new real estate investors, learning what mistakes to avoid can reduce risk and prepare you for success. Often these mistakes can be easily corrected with the right education. See the following article from REIClub to learn more.
“Real estate investing fever” has hit like a plague. Zillions of “newbie” investors are jumping on the bandwagon trying to make a profit after losing big in the stock market. I meet them all the time, and many are making big mistakes!
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 I 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.
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 fund manager).
I read a comment on a real estate discussion group on the Internet. In response to an inquiry as to whether a particular seminar or training program was worth the money, someone answered, “Why waste your money on that stuff? Just use your money as a down payment and learn as you go.” This is probably the worst advice you could ever give a beginner. Money for deals is easy to find if you can find good deals. But, you won’t know what a good deal is without having first invested in your education! The more knowledge of 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 always be a safe investment; 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
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. Heck, even K-Mart failed to learn that valuable lesson! In order to stay in real estate long term, you need cash reserves. Buying real estate 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, 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 a whole different ball game than operating from a lack of cash. Like I said, 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 properties.
Mistake #4: Being Greedy
Many investors get started flipping properties to other investors, which is a good idea to generate cash reserves. However, you must be realistic about how much profit is in a deal. If there is a potential for a $20,000 profit in a rehab project, you can’t expect to make $10,000 flipping that property to a rehabber. A rehabber has a huge risk embarking in such a project and wants a large enough profit to justify the risk.
For example, if a house needs $10,000 in repairs, and the rehabber investor wants to make at least a $20,000 profit. If you find a deal with $20,000 in profit potential, how could you expect to get $10,000 for flipping the property if the rehab investor is only going to make $10,000? You should be happy making $2,500 and moving on to the next deal. If you want to make more than $2,500 on such a deal, then you must find and negotiate a better bargain that has more profit potential.
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. Why the high fallout rate? Lack of action and unrealistic expectations. Investing should be treated with the seriousness of a career. It takes months, even years for a business to cultivate customers and have a life of its own. You need to treat real estate like any other business.
Give yourself at least six months to see if real estate works for you. It may even take a year before you buy your first property. Maybe in the second year you will buy three or four properties. If you work hard at it and keep your eyes and ears open, you may even find your first deal in 30 days. You will not make money by talking or thinking about it; you must go out and take action.
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 600 transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch. He has been featured in Who’s Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996.
This article has been republished from REIClub. You can also view this article at REIClub, a real estate investment education site.
Home Buyers Tax Credit
March 30, 2010
A first time buyer is defined as someone who has not owned a home in the last three years. If you are a first time home buyer, your tax credit will amount to 10 percent of the purchase price of your new home not to exceed $8,000.
A long time resident is defined as someone who has lived in the same primary home for 5 out of the past 8 years. If you are a long term resident, your tax credit will amount to 10 percent of the purchase price of your new home not to exceed $6,500.
The tax credit does not need to be paid back if you continue living in the home as your primary residence for three years without selling it.
the home must be purchased for less than $800,000 before May 1, 2010. If you sign a contract to purchase a home before May 1st, you would need to close on the transaction before July 1, 2010.
Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.
You can not purchase the home from a related party like a spouse, direct ancestor, or direct lineal descendent: however you can still qualify for the credit if you purchase a property from a sibling, nephew or niece.
If you are married, both spouses must qualify for the credit.
Please contact me for more information regarding the tax credit or to go out and look for a new home.
One more month to get the home buyers tax credit!
Client Movie was “Cloudy with a Chance of Meatballs”
March 25, 2010
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GETTING THOSE KIDS BACK TO SCHOOL?
September 3, 2009
I know this time of year either brings peace or dismay to families. For me the kids starting school is a double edged sword. I love spending the day time with them enjoying all of the outdoor activities but at the same time I like them to have a structured schedule to keep them on track. Hopefully this article by Jason Womack, MEd, MA and Joe Bruzzese, MA will be helpful to ease the children back into the school year. For more information go to www.ThinkForwardTV.com
Leading the Way into the New School Year
Tips to Help Parents Save Time and Help Children Grow
By Jason W. Womack and Joe Bruzzese
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Step 1: Create Opportunities for Your Children
You may need to release your grip on having things done your way, and promote the growth of someone (your child) taking on new responsibilities. In the beginning, you may need to invest more time explaining the task than it would have taken you to do the job yourself. However, this exercise is more of an investment in the person, the process and your family. This eventually frees up more of your time to graduate to a higher level of activity, or perhaps result in a few moments of free time. You may need to ask yourself, “Am I the best person for this task?” Doing so may create opportunities for your children to take on more responsible roles.
Step 2: Maintain Ongoing Communication
My good friend had a plaque made for her home that, which says, “Hope is not a strategy.” She explained to me that she couldn’t “hope” friends returned her calls, or “hope” that her children followed up on the tasks she gave them last week, or “hope” that her family found time to spend together. She challenges her children with growing responsibility as they earn it. As a parent, she maintains ongoing communication on each idea or task as if it were her own.
The key to doing this successfully is having a full inventory of everything you expect your children to take responsibility for and then to hold ongoing conversations so there is still time to act if an unexpected situation arises. It’s important, however, to avoid advice-filled lectures, which often bring conversations to an abrupt end.
Try the following lead-in question with your child, “How much time will you need to finish up with your projects this week?” Asking your children to talk about what they need in order to solve a problem shifts responsibility away from you dictating what needs to happen, and keeps the conversation moving in a positive direction. At the end of the conversation, you will have a clear idea of your child’s goals and the plan for achieving them. In addition, your child leaves the conversation feeling acknowledged for the effort and responsibility he or she has taken.
Step 3: Hold Family Meetings
The final key to successful leadership as a parent is the family meeting. Scheduling a consistent time to meet with your family allows for an ongoing review of your family’s progress. Reviewing progress provides a valuable opportunity for you to talk with your children about how things could be done differently in the future—a learning strategy that results in real change. Each time your family meets, your children build on their past success and consider opportunities for change in the future.
Here are some ideas to make your family meetings successful.
- Begin the meeting with acknowledgements. Everyone has an opportunity to acknowledge the person seated to the right for something positive. You don’t need to return the acknowledgement but would continue the round by acknowledging the person seated to the right of you. Beginning the meeting with acknowledgements puts everyone in a positive frame of mind, lets everyone know that their efforts are valued, and sets the stage for a productive and collaborative discussion.
- Encourage your children to come to the meeting with ideas and questions of their own so that the meeting is truly a “Family” meeting rather than a “Mom and Dad Meet with the Children” meeting, a model that many families seem to slip into.
- Post a piece of paper or a white board where all family members have the opportunity to add questions or ideas for the upcoming meeting. A few rules need to surround the agenda though in order to keep it from becoming a laundry list of items that you skim through. Perhaps you can choose to allow everyone to add one question to the agenda. This ensures people bring the item that is their biggest concern.
- To handle any frustration that arises during the meeting, have a rule that any member of the family can call for a timeout and in doing so can freely state his or her frustration or confusion. However the person who called the timeout must add the following question after sharing his or her feelings: “How can we change what we are doing so that there will be less frustration or confusion?” This helps lead to even better communication in the future.
Make It a Great School Year
Great parents understand both the big picture with respect to their child’s development, and how to shift responsibilities that empower their children to step up to new roles. Great parents know that when everyone has a vested interest in the family, and people are acknowledged for their contributions, real change happens. Goals are exceeded, and family members are excited and engaged in moving forward.
Implement these three ideas and you will be on your way to making this year a successful school year for the whole family!
PUT THE HOUSE ON A CLUTTER DIET
August 6, 2009
Focus onsmall changes you can make now. Focus first on having good morning and evening routines, since those support you throughout your day and affect you and your family the most. You can start with the morning “To D.E.W.” list: Dishes, Eating, and Wash. In the evening you can focus on the “Triple S” routine: Start the dishwasher so the dishes are ready to put away in the morning, Straighten up do clutter control of flat surfaces and the floor and Set for tomorrow gather whatever you need for the next day.
Then you can focus on the organizing projects that have the largest impact on your daily life, probably the lkitchen, utility room and bedroom. You want to get the most frequently used areas figured out first, with all of the systems that support them, then move on to projects such as the spare room or the garage that have less impact on your day.
The prescription: Get three boxes. Label them “Keep, Toss, Give away:. What do you do if you still have too many things in your “Keep box?” Think about this, does the stuff you keep in your box keep you in the past or does it make you focus on the future? What is the worst thing that could happen if you did not have a particular item?
When you embark on a journey of personal change – which is what getting organized is for many people – one of the pitfalls is the idea that you are either good or bad. You will have up and down days, but don’t just give up. You want to be leaning towards improvement over time. Ultimately you end up growing and improving when you know that you dont have to be perfect every day. T
Special thanks to Lorie Marrero author of “Clutter Diet”, for more information please go to her site at www.clutterdiet.com
What is the Value of My Home?
June 25, 2009
What is the Value of My Home?
Over the past few months many clients have
struggled with the question of “What is the
value of my home?”
WHO KNOWS??!!!
This answer is as good as any in this market considering all of the short
sales, foreclosures, and distressed property sales in the market. However;
before you settle on a value number for your home, make sure you ask
yourself WHY you are asking this question. There are many ways to look at
the so called value of your property!
Let me explain!
Are you considering selling your home? If you are, remember that your
home will typically sell for an amount that a buyer is willing to pay you for it.
No matter how much we all jump up and down, no buyer in their right mind
-in this market- is going to pay us what we think our home may be worth.
If you are considering listing your home for sale, your best bet is to seek the
advice of a professional Realtor® before doing so. They can provide you
with valuable information that you MUST have before deciding on the final
listing price.
Are you considering refinancing? If you are, an appraisal will most likely
be initiated with the transaction. The appraiser will give the lender, in the
appraisal report, an opinion of what they consider to be the current market
value of your home as of the date the property was inspected.
Couple of things about the appraisal:
You’ll most likely NOT agree with the appraiser’s value assessment. But, if the
number they come up with works, and you are able to proceed with a more
favorable rate and financing term, don’t get too bent out of shape with the value. It’s just an opinion.
You’ll most likely NOT agree with the comparable sales that the appraiser chooses
to compare values with your home. Appraisers have strict guidelines that must be
followed before a comparable can be chosen. One of the most important being
“recent sales in your most immediate area”. With all of the short sales and
foreclosures going on in many subdivisions, this guideline can be a real value killer.
Once again, if the number they come up with works, and you are able to proceed
with a more favorable rate and financing term, don’t get too bent out of shape with
the value opinion in the appraisal. It’s just an opinion; it’s NOT what you may be
able to sell your property for at some point in the near future.
Are you trying to dispute your property’s tax assessor’s value?
Typically, the county “Tax Assessor’s Office” assigns an “Appraised Value” and/or an “Assessed Value” to your property.
This value or number is used to calculate your annual property tax. It’s not a number that should be used to list your home for sale. Nor is it a number that a lender is going to use to consider lending you money on the property.
If you’re looking at the tax assessor’s property valuation and thinking, “Man, there is noway my home will sell for this amount”, then you may want to consider filing a dispute valuation with the taxing authority. Be prepared to fill out the necessary paperwork and provide them with evidence to support your claim. Be prepared to stand in line along with all of the other thousands of property owners that are currently disputing their property value.
Are you trying to determine if you have enough homeowners insurance? If this is your goal, you really need to call your insurance agent and let them help you with this. At a minimum, you want to always make sure that your home is insured for at least 100% of its estimated replacement cost.
Replacement cost is NOT:
The market value of your home.
The home’s purchase price or the cost of the land.
The outstanding amount of your mortgage.
Resources
Are you looking for general home sale statistics?
I’ve listed below a couple of the most quoted sources in the media for home sale statistics. There is a bounty of information at both of these, so be prepared to be overwhelmed.
The National Association of Realtors
(http://www.realtor.org/research
/research/ehsdata)
Case-Shiller Home Price Indices
(http://www2.standardandpoors.com
/portal/site/sp/en/us/page.
topic/indices_csmahp/ 0,0,0,0,0,0,0,0,0,
1,1,0,0,0,0,0.html)
Are you looking for general home sale statistics?
I’ve listed below a couple of the most quoted sources in the media for home sale statistics. There is a bounty of information at both of these, so be prepared to be overwhelmed.
The National Association of Realtors
(http://www.realtor.org/research
/research/ehsdata)
Case-Shiller Home Price Indices
(http://www2.standardandpoors.com
/portal/site/sp/en/us/page.
topic/indices_csmahp/ 0,0,0,0,0,0,0,0,0,
1,1,0,0,0,0,0.html)
Are you looking for general home sale statistics?
I’ve listed below a couple of the most quoted sources in the media for home sale statistics. There is a bounty of information at both of these, so be prepared to be overwhelmed.
The National Association of Realtors
(http://www.realtor.org/research
/research/ehsdata)
Case-Shiller Home Price Indices
(http://www2.standardandpoors.com
/portal/site/sp/en/us/page.
topic/indices_csmahp/ 0,0,0,0,0,0,0,0,0,
1,1,0,0,0,0,0.html)
Are you looking for general home sale statistics?
I’ve listed below a couple of the most quoted sources in the media for home sale statistics. There is a bounty of information at both of these, so be prepared to be overwhelmed.
The National Association of Realtors
(http://www.realtor.org/research
/research/ehsdata)
Case-Shiller Home Price Indices
(http://www2.standardandpoors.com
/portal/site/sp/en/us/page.
topic/indices_csmahp/ 0,0,0,0,0,0,0,0,0,
1,1,0,0,0,0,0.html)
A WEEK IN REVIEW TO KNOW WHATS GOING ON OUT THERE
June 9, 2009
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| In the week ahead May retail sales could receive a boost from tax cuts while the Fed’s beige book may reflect the improved outlook. The trouble spot appears to be in the bond market as higher yields there pushed mortgage rates higher. $65 billion in new supply this week may exacerbate the interest rate trajectory. | ||||||||||||||||||||||||||||||||||||||||||||||||
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The ISM manufacturing index rose to 42.8% in May led by new orders which bodes well for future production. Manufacturing is still contracting albeit at a slower pace. Looking ahead, manufacturing declines should continue to moderate this year with the possibility of mild, positive growth late this year or early next year.
Fed Chairman Ben Bernanke, in testimony before the House Budget Committee, said he expects economic growth to resume later this year but indicated that it probably won’t be robust. The Fed Chief also spoke directly to lawmakers about reducing the size of the budget deficit, now at nearly $2 trillion, warning that the Fed will not print money indefinitely to fund government spending. The Chairman did not address the Fed’s balance sheet, securities purchases or the 1 point jump in the benchmark 10-year yield since early April. Maintaining low interest rates of course is essential to future economic recovery.
The MBA mortgage applications index fell 16.2% to 658.7% for the week ending May 29. The sharp decline last week was entirely due to a 24.1% decline in refinance applications related to rising mortgage interest rates. Contract 30-year fixed mortgage rates surged 44 basis points this week after remaining below the key 5.0% level the last two months. In a hopeful sign the purchase index gained 4.3%.
