Real Estate investing is one of the best and safest ways to compound a small amount of capital and experience into a veritable financial empire.
There are, however, a few mistakes that could coast you literally hundreds of thousands of dollars not to mention years that could be spent happily investing your profits.
In Real Estate as with any other great endeavor, it's often the small things that trip us up, so here are few things that are as easy to overlook as they are worth looking out for.
Exercise Proper Due Diligence Due diligence is like the checklist before liftoff, overlook one little problem and the whole thing blow up in your face.
It's no coincidence that for experienced investors the bulk of their potential investments are walked away from during the process of due diligence, usually as a result of some fault not readily apparent with the property, or in the sellers case some fault with the buyer.
The basic process of due diligence is making sure that everything is what it seems like, verifying the property's income and expenses, checking the legal status of the current owner and title, and of course a physical inspection of the property itself.
All of this information is ostensibly present at the outset of the deal, however, the expense in time and effort to perform adequate due diligence is nothing compared to the cost of closing on a deal only to find a serious problem that could have been easily uncovered.
Furthermore done well due diligence can actually enhance an already appealing deal, uncovering areas for opportunity that may have been missed, in many cases this process can and should continue on into the actual ownership of the property.
Avoid Paying Too Much Of all the mistakes an investor could make, the surefire sign of a true novice is overpaying.
While you would certainly have a very pleasant relationship with all the Real Estate agents, Brokers and others involved, because you just gave them a lot more money, you will never set any financial records this way.
In Real Estate there are certain earmarks that indicate how expensive a property actually is, regardless of the total price, these vary from price per square foot to price per unit or even price per acre, but they all serve to give you an accurate basis for comparing the price of a property.
If you're still not sure most appraisers can give an estimate of the property's value, of course the estimate will only be as accurate as the appraiser performing it and usually is not free, it always pays to be able to analyze a deal on your own.
The price of overpaying is having to babysit a property that pays you little if any profit and won't be easily saleable until the overall market has increased enough to justify your price.
Always Know the Market Simply knowing the state of the Real Estate market both nationally and your own local market, is the surest way to profitably avoid some common pitfalls.
When analyzing a property be sure to include the rent rates and corresponding vacancy rates of similar local properties.
You need to be competitive, but try to find the sweet spot in terms of price versus quality.
Also take into account the local demographics; some areas might remain steady all year, while college towns or vacation hot spots may have their regular highs and lows.
Take a look at any government programs, such as rent control, too.
The presence of these factors can greatly affect how good or bad a deal really is.
You should also take into account the neighborhood itself, in terms of crime rates, school and hospital locations, parks and the quality of the local roads.
Be Open To New Opportunities The Real Estate market is always changing, whether it's just the house down the street getting repainted, a mortgage rate shift or an entirely new type property regulation.
All of these changes make it somewhat impractical to a have your investing goals set in stone.
One of the keys to this open minded yet profit oriented approach is to always have more than one exit strategy for every deal.
In fact, the best policy is to constantly challenge yourself to come up with new exit strategies, and don't just idly think of them, explore how doable they really are.
The only thing worse than being on the receiving end of a blow from the market is knowing that you had a contingency plan but never took any action on it.
Bear in mind market conditions are not the only variable, perhaps your tenant goes bankrupt, or you may have a change in your own finances.
Constantly being open to new exit strategies may not be easy, but it provides a great education and more importantly, the security to pursue further, larger, more profitable deals.
Understand Market Cycles Just as it makes no sense to try surfing a wave that hasn't swelled yet, trying a particular Real Estate strategy, no matter how trendy it is, won't work without the corresponding market conditions.
While they may be called by different names there are a basically four parts to the Real Estate cycle: up, down, bottom and sideways or adjusting.
While the conditions themselves and their implications are outside the scope of this article, it is well worth emphasizing the importance of not only understanding them but also know which cycle is currently in effect.
Also note that the cycle for the national market may be the same or entirely different from that of your local market.
One of the greatest advantages of knowing the current cycle is the almost prescient ability to predict the next cycle and base your investments accordingly.
While this is a brief overview of the high points of Real Estate investing due diligence, there is a large degree to which it will vary from one type of property to the next.
That being said, the principles put forth are a strong basis for analyzing the type of deal or deals that are best suited to the market and to you the investor.
With experience and degree of insight, investors can develop an almost invulnerability, however, mistakes made early on can sometimes be the most costly.
Work as hard analyzing and understanding your deals as you do looking for them and bear in mind that all along you adding to your financial momentum.