Archive for the ‘Miscelleanous (but extremely interesting)’ Category

Top 20 Real Estate Investment Mistakes

Tuesday, June 24th, 2008

There was a time when I invested in real estate. I think real estate can be a great investment if done right, and I may do it again one day. I did a lot of things wrong. Here are a few of my lessons learned, or more accurately, “Things To Never Do Again”:

  • Expect to run a rooming house smoothly in a low-income area.
  • Expect to easily attract good tenants in bad areas.
  • Be the slightest bit lenient with new tenants.
  • Trust people (especially tenants) just because they seem honest and sincere.
  • Take a seller’s word for what the income and expenses are without proof of EVERYTHING.
  • Neglect to write directly into the agreement of purchase and sale the exact dollar figure of last month’s rents that the sellers will credit me with.
  • Not expect repairs, especially on an old building.
  • Not expect vacancies.
  • Neglect to have a reserve fund set aside for repairs / vacancies / etc.
  • Neglect to double the predicted numbers when estimating the time and cost of renovations.
  • Expect to charge a higher rent just because someone says they’re low (it easy to SAY that they’re low… and if they actually are very low, the tenants really won’t want to leave!)
  • Expect that utility costs will go down, since they look unusually high.
  • Expect that utility costs will remain the same for the coming year (prices go up over time!).
  • Expect that the amount of my insurance will be the same as the insurance of the sellers (since property values go up, insurance does too!).
  • Use last year’s property taxes when estimating expenses for the coming year.
  • If the bank is paying the taxes, neglect to account for the fact that they collect from me more taxes than are actually owed, in order to create a buffer for themselves.
  • Not account for hiring a property manager down the road, even if I start out managing the place myself.
  • Massage the numbers so they look better, since I’d really like to buy the place.
  • Do a deal without getting the opinion of an experienced investor.
  • Let a losing relationship drag on without change, especially if I’m paying for a the service (property manager, real estate agent, etc); demand instant change or end the relationship and find a better one.

Well, there you have it. If you’re investing in real estate, or thinking of it, I hope I’ve saved you a bit of frustration.