* Real Estate Investment Mistake #1 - Quick Buck Schemes & Scams
Real
estate wealth was the road to riches of 9 of every 10 Canadian
millionaires. That's why in looking at real estate we agree you are
definitely going in the right direction. But few made their fortunes in
overnight changes of value, or by buying their real estate for less
than it was worth when they bought it. They made their fortune in
buying the real estate for less than it was worth over time as they
owned it. Pre-foreclosure, foreclosure, pre-construction, fix and flip,
remodeling, probate, lease options, and a million other schemes count
on your buying something for less than it is worth at closing. That can
happen, but the most predictable real wealth from real estate comes
from appreciation from market forces over time not the stupidity or
lack of knowledge of sellers at the closing table.
* Real Estate Investment Mistake 2 - Not Having a Business Plan
The first thing you should figure out is, what
are your goals, and what road map will get you there? Do you want real
estate you work for, or real estate that works for you? Do you want the
independence of being in charge of your real estate like you are in
charge of, say, owning your home, or do you want to turn over control
and handcuff yourself to partnerships, tenancies in common, REITs, and
so on? How much wealth do you need to reach your goals of independence
and security at retirement? Is there a better way to get there than
real estate (obviously, we think, no!)? But it has to be real estate
done the right way, with the right business plan.
* Real Estate Investment Mistake # 3- Not Doing Your Homework
So
you need a business plan, but don't expect to have a good one until you
do your homework. Where is the right area to own? What kind of property
should you own? What leveraging or financial structure maximizes ROI
(return on invested dollars)? What should your acquisition costs to
potential rent ratios be? How can you get a head start on your
homework?
* Real Estate Investment Mistake # 4- Making the Cash Flow Mistake
Cash
flow is an important piece of the real estate wealth puzzle. But you
can rob yourself of future profits by putting too much emphasis on just
this one, albeit important consideration. Why? Because no one gets rich
on cash flow. Isn't it appreciation over time that yields the real
rewards? Did the equity in your home come from cash flow or
appreciation? If a slight cash flow at acquisition impresses you to the
point it drives your purchase decisions, aren't you looking at the
wrong end of the telescope? Cash flow is an important indicator, but
potential appreciation flow is the secret to real estate wealth. That's
why doing your homework is so important.
* Real Estate Investment Mistake 5 - Forgetting That Sheep Do Not Earn the Lion's Share
It's
human nature to follow the crowd. That's why so many of us buy a stock
after it's gone up like a rocket, instead of before where the ride up
can be significant. It's the same in real estate. Doesn't it make sense
to anticipate growth, not follow growth, by analyzing the layering of
probabilities of the elements that can presage significant growth to
come? The crowd won't be there until it's too late to make the profits
you will have made. We'll show you how we layer the probabilities to
serve our customers, folks just like you who are committed to their
economic independence
* Real Estate Investment Mistake -#6 Being Your Own Property Manager
This
is intuitively sensible, which is why so many intelligent people fall
into this trap. Why not save the cost of a property manager and
increase your net cash flow? Who will pay as much attention as you will
to your own property? Who will care as much? Yes, but consider this.
Property management is a low margin, many aspect enterprise.
Experienced successful property managers will tell you a property
management company does not make sense economically until it has a
customer base of a hundred properties or more.
Then
marketing, clout with subcontractors like plumbers, round the clock
staff to be attentive to tenant concerns or emergencies, and so on
makes sense proportionately. You would almost always do better to put
the time you may be wasting as your own property manager into your own
business or career. It will pay better. But the more important reason
should be obvious. By managing your own property, aren't you
handcuffing yourself to the area where you live? That just doesn't make
sense if your goal is to own real estate in the areas most likely to
appreciate the most over the coming years. Don't let the tail wag the
dog.
* Real Estate Investment Mistake # 7 - Not Considering Your Exit Strategy
Real
estate is a wonderful reservoir of value, and the only one that serves
as its own collateral, allowing ordinary good economic citizens like
you and us access to the capital markets in abundance in the form of
readily available mortgage money. But real estate is among the most
illiquid of asset classes. Consider that when you decide you want to
turn your illiquid real estate riches into cash by selling it, you want
to have the largest possible pool of potential buyers. Don't get stuck
in the wrong type of real estate.
* Real Estate Investment Mistake# 8 - Biting Off More Than You Can Chew
It
is horrible to see good people finally take action but not be prepared
for real world real estate ownership. Sometimes, even in strong rental
markets, your unit can be vacant. It is great to leverage your
purchase, but that should be a choice, not a necessity. Sometimes
vacancies happen. Sometimes emergencies happen. We vet our customers to
help them avoid the shock of real world real estate ownership. Doing it
right may mean buying one property this year and not two. There is no
faster better or more certain path in our view to real wealth and
financial independence than the right kind of real estate as part of
the right kind of business plan. But slow and steady wins the race
every time. Part of due diligence is learning that patience is a
virtue.
* Real Estate Investment Mistake 9 - Not Checking Out Your Vendors
Including
Us. Your homework should include not only learning about being in the
right place at the right time, but also making sure the product is the
right product and that your vendors deliver what they promise. At a
minimum, that means you should check out your vendors' track records.
While past performance is no guarantee of future results, doesn't it
give you a good framework to begin an analysis? What systems and
methodology do your vendors use when designing the product they bring
to market? What are their relationships with other necessary
professionals? What do their existing customers think of them? What
kind of warranties come with their product? What kind of people are
they?
* Real Estate Investment Mistake 10 - Not Taking Action Today!
Success
in life is always a balancing act. We have tried to warn you about
common mistakes above, made by rookies and very experienced buyers
alike. But far and away the biggest mistake we see is not balancing
your due diligence with your responsibility to take action. Very few
people have achieved the security and wealth they need to retire
comfortably and worry free knowing they have taken care of their
responsibilities to themselves and their families. Your biggest asset
is always your income from work. When our income from our careers stops
at retirement most of us need at least several million dollars in
assets to substitute for it. And most of us do not have that kind of
number in our asset column. Time is the friend of those who own real
estate and the enemy of those who do not own enough.
If
you are like most Canadians, as to retirement wealth, your economic
house is on fire. If you have a good income from your career, in one
sense that means that you are used to a certain lifestyle. We talk to
many folks who are rightly proud of having several hundred thousands of
dollars in RRSP assets, equity in their homes and other real estate,
and in the stock market. Very few are in that position. But estate
planners say these folks need three to five million dollars to enjoy a
secure and prosperous retirement which may last twenty or thirty years
or more. If you are ten, twenty, or even thirty years from retirement
you have no time to lose. We believe with all our hearts that the right
kind of real estate gives the highest probability of allowing these
kinds of results. But chances are, you have no time to lose. So please,
take action today
Thanks to my friends at
Canada REIC for this article
