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| How to
Minimise Risk in Real Estate Investment |
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| Avoid 12
Common Mistakes Made by Novice Investors and Ensure High Rates of Return! |
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| Real estate
investment has provided many investors with positive cash flow, tax benefits
and satisfaction of making an impact in others lives. Like any investment
however, real estate has intricate nuances and market trends that when
ignored can cause an investor tremendous heart ache. Unbelievably many
first time investors are willing to part with their hard earned cash without
taking the time to study their investment. They rely on traditional trends
and gut feelings. Before you risk your investment take the time to learn
all you can about your market. By aligning yourself with the right professional
you can avoid these 12 common mistakes and you'll ensure an excellent return
on your investment. |
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| 1.
Failure to Determine Your Time Need - Cash flow, capital appreciation,
tax benefits, loss of management, equity paydown and pride of ownership
are just some of the things that need to be addressed before you make that
investment. |
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| A
service minded real estate professional can be a tremendous asset by taking
the time to evaluate your needs and making sure you've got all your bases
covered. |
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| 2.
Not Checking out the Seller or Sellers Agents Numbers - Claims of extremely
high rates of return run rampant in real estate investment. Don't get caught
up in the excitement - check everything: rents, payment history, taxes,
expenses, deposits, future modifications... everything. Make sure you have
the right agent...it's like having a good insurance policy against overlooking
all the seemingly insignificant but very important details. |
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| 3.
Forgetting You Are Buying a Business - Owning investment property carries
with it a great potential for creating wealth and... some potentially difficult
decisions. Evictions, re-investment into the property and time management
all need careful consideration. Remember this is not a 'hands off'
business. |
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| 4.
Avoid Negative Cash Flow - Property that eats cash every month can drain
your working capital. This can create stress, frustration and become quite
painful. Predicting constant appreciation is extremely difficult if not
impossible for the unseasoned investor. A strain on your cash flow may
cause you to sell the investment before the benefits of ownership are ever
realized. |
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| 5.
Failure to do a Thorough Inspection - Look under every rock! Hire a professional
inspector. Ask the tenants about pest problems, structural damage or reoccurring
problems. Don't overlook anything! A value driven real estate professional
will help you find the right inspector and can help you avoid costly mistakes.
When
investing your hard earned money be sure and use sound business judgment! |
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| 6.
Failing to Have Adequate Insurance - Investment property brings liability.
Tenants, cars, parking lots, cleaning facilities, property liability -
the list is quite extensive. Adequate insurance coverage is an absolute
must! Be sure to consult with an insurance professional and protect your
hard earned assets. |
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| 7. Inspect,
Approve, and Confirm All Documents - The list of documents that need to
be proofed can be overwhelming to the first time investor. Building permits,
zoning laws, rental and lease applications, health licenses, laundry leases,
underlying loan documents, CC&R's, by-laws, title policies, mineral
leases, inspection reports, purchase contracts, insurance.. don't attempt
to do it alone. The right professional can remove most of the stress and
bring the transaction to a conclusion smoothly. |
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| 8.
Get a Bill of Sale For All Property Involved - Many types of personal property
(appliances,
furniture, fixtures, etc.) can be involved in an investment sale. Be
very detailed -know who owns what! |
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| 9. Charge
Fair Rents - Vacancies, turnovers and lease terminators are your biggest
expense. Charge fair rents, treat your tenants with respect and respond
as quickly as possible to their needs. It's a lot less costly in the long
run to take care of the little problems before they become big problems.
Vacant property is your Achilles heel. |
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| 10.
Select Qualified, Good Tenants From the Start - Take the time to check
references. Previous landlords, employers, financial references, credit
and judgments are all vitally important. If there are any questions
do a thorough investigation. |
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| Drive
by their previous residence. A little work up front can save tremendous
problems later. |
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| 11.
Make
Sure You Get Estoppel Letters - Get letters from tenants confirming the
status of tenancy. Make sure their version of the rental or lease agreement
corresponds with the sellers interpretation. |
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| 12.
Don't Spend Positive Cash Flow - Most of successful investors have free
and clear properties. Be sure to re-invest your cash flow back into the
property payment and speed up the amortization schedule. This decreases
your debt load and increases your equity which builds your net worth. Investment
property can be one of the most rewarding aspects of your financial portfolio.
Be certain to have all your ducks in a row before you invest. Do your homework!
Consult with a professional real estate agent and protect yourself from
the hidden troubles that can plague first time investors. |
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