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Investing in Residential Real Estate - Avoid These Mistakes

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avoid mistakes when buying a home

Everyone likes to talk about how you can become wealthy in real estate. However, there are times that we tend to make mistakes along the way and it's one of the surefire ways to go broke. So let's take a little time to discuss mistakes everyone should avoid.

  1. Over leveraging is a great way to loose your shirt in real estate. Everyone likes to talk about the no money down investment. However, no money down is normally only a great deal for the bank as the probability is quite good that they will become the owners and you will become the schmuck. Trust me on this. No or low money down requires magic to create cash flow. While I've successfully pulled off the magic, I've also failed to deliver magic. You don't want to be in this position.
  2. Under funding your reserves can quickly place a project at great risk and lead to a disaster for you and your investors. Set your reserves to account for occupancy fluctuations, increases in expenses, unexpected capital costs, and other factors so that your investment remains solvent and your bankers remain patient.
  3. Look for changes in the market place that signal declining value or increasing values. If values fall, take steps to secure your debt for the long term until the change is over. If they rise disproportionately, look to see and wait until rational values return.
  4. Don't rush. Understand your investment's basic needs and keep your business positioned so that you don't find yourself buying deals to reach some required scale. Ensure that your principals are receiving compensation and projects are receiving funding to assure they match their potential overtime. This can imply that some of the partners have taken a back seat while things are worked out or that they may need to contribute capital So be it. This is the wise thing to do.
  5. Don't lose focus. Exercise care not to chase to many deals, not to become spread over too many initiatives, not to be working to large of a geography, or otherwise dilute your effort in a way that undermines your business.
  6. Keep the books in order. The critical point here is to keep a ledger of transactions that an accountant or bookkeeper can use to rebuild the books should any given accountant prove unable to create accurate books. This dummy proofs the process and protects you from incompetence.

There are many other mistakes investors should avoid, but this is a short list of a few really critical considerations that will protect your invested capital and assist assuring your return goals.

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