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.
Tags: real estate
I found your blog on MSN Search. Nice writing. I will check back to read more.
Eric Hundin
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor