This article was posted on Thursday, Nov 08, 2012

Below are common real estate investment field practices that can lead to disappointing results (mistakes) that, if allowed to do it again, should be avoided:

1. Not Sampling the Market
Buying properties without thorough knowledge of current prices and practices.

2. Not Buying Now (or more)
Putting off that next buy in a good market while you still have the funds or time.

3. Not Diversifying
Putting all of your funds in one apartment building; not putting some funds in other (rentals/stocks).

4. Putting Too Much Down
Putting 50 to 100% down restricts earnings from tax write-offs, inflation and leverages.

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5. Buying White Elephant
That “different” property with a great price – watch out!  Stick to mainstream deals.

6. Offer Timing
Hesitate and lose a good deal; too quick and not have time to properly inspect or compare.

7. Buying Out of Town
That “great price” in Arizona may be in fact an over-price to other Arizona properties.

8. Location
Pay a little more and buy centrally (in town); easier to rent, maintain and later sell.

9. Nit Pit Prices
If it works out to be a good buy for you, don’t nit pit the offer (inflation will win you out).

10. Avoid Partners
Better to short-term borrow money than to take on a partner for funds (except spouses).

11. Sell Too Soon
Don’t be too quick to sell with the first blip of the market – hang on as long as possible.

12. Not Matching Experience
Unless you are handy with tools, avoid fixers without alternative resources.

13. Small Towns
Be thoroughly schooled on local economic conditions; use a sharp pencil before buying.

14. Too Much Debt
With back-up jobs, it’s OK to start with low downs.  As you get larger, be more conservative.

15. High End Properties
Avoid High-priced rental stock – the competition can wipe out a small investor.

16. Finally
Don’t let this list scare you off – go out and buy something!

Strategies for Buying Properties
By Ann Curry and Karen Orr

Your main purchasing goals should be to:

•    Maximize your buying power
•    Maximize returns on investment
•    Capitalize on the market

This can be done under three strategies, buy and hold, buy and sell, and buy and occupy.  In any event, the investor starts with the “buy” and proceeds with six financial steps.

Step 1: Get pre-qualified for financing; identify property-estimate renovation costs/finished value.
Step 2: Determine rent range and cost to sell.  Does the project pencil out?
Step 3: Select a contractor, get bids, confirm value.
Step 4: Obtain financing for take down and rehab – 70% to buy and hold, 65% to buy and sell.
Step 5: Manage the renovation (don’t give out keys and wait for a bill – supervise on site!)
Step 6: Refinance into permanent financing at 75% of completed value (or market it for sale).

Reflections on Real Estate
By Virgil Wells

In any market there are half buyers and half sellers.  Any deals necessarily must satisfy either sides, or at least one side.  Some pros say that the perfect sale is when both the buyer and seller are equally dissatisfied.

Today’s Market
In today’s market, 34% are short sales and 24% are bank-owned sales comprising 58% of the total listing market.  Therefore, it is a good idea to look for someone who knows the ropes in today’s “upside-down” real estate world.  A “good deal” can be also defined as one where the numbers look good.  A simple index is to track the ratio of price 100 x monthly rent.  In normal times, a duplex normally sells for 100 to 110 times the rent.  If you can one at a lower price (for the same rent), you potentially have a good deal (assuming the condition and location is good, etc).

Shadow Inventory
Adding more to today’s special market conditions, banks are carrying a huge inventory of defaulted properties not yet foreclosed (put back on the market).  Look for this inventory to eventually flush out before markets can get back to normal.  Some question whether we have hit bottom; hold tough until the results of the next election unfolds.  In any event, the market will eventually recover though relatively slowly.  Meanwhile, current market sales are still falling below appraised values.

Rules of Investing
Virgil has developed these thoughts following his years of investing experience:

•    Always buy, never sell
•    Never buy today what you can’t sell tomorrow
•    Use other’s money.

Reprinted with permission of the WLA Quarterly, the official publication of the Washington Landlord Association.

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