Real estate investing does not have to be difficult. In fact, if it is done correctly the right investor can have many positive things occur. Investment properties are often accompanied by tax benefits, increases in your flow of cash, and the ability to impact others in a positive way.

Like anything else that requires a bit of knowledge, the wrong moves when investing can cause investors serious financial damage and one major headache when you have to clean up the mess.

The key is to study the market trends, the minor changes in area value, and how well investment property seems to be doing in your area of choice. If you do this you’re on the right track toward financial bliss, and secure investing practices.

I know you probably will not believe this, but the majority of first time investors make the mistake of investing without properly investigating what they plan to invest in. I often ask new investors what they know about the property before they consider purchasing it. More often then not I hear that they want to purchase the property because they “have a feeling” everything is going to go well with their new property.

While it is good to trust your gut instinct it is not a recommended practice to adhere to in the business world.

You wouldn’t just buy a car because you had a feeling it was going to work correctly. You would test drive it, get a feel for it, and then consider all your other options before deciding on the vehicle of choice. The same is true with any other type of major purchase you make; investment property should be included.

This article will help you learn all you can about the real estate market. Hopefully you can take this knowledge and apply it to your own investment property situation.

I should also add that the right real estate agent will have knowledge of investment property in the area they represent. These individuals have a strong understanding of the real estate market and how it fluctuates in their area. They can help you purchase the right property, and educate you on what you need to know and what questions you should ask before buying any type of property.

Armed with the right knowledge you can not only avoid the 12 biggest mistakes new investors make you can also make sure the return on the property is successful.

Mistake #1
Inability to have an Accurate Time Table Established

Investing is different for every individual. It seems like more seasoned investors know what they are looking for. They have experience on their side. They have done this before. Each sale WILL be different, but they are going to understand what goes into the entire procedure more than a novice investor will. The first sale is going to take a bit of time. It will not happen overnight.

I know that investing can be new and exciting! Sometimes you can get carried away and fail to accurately judge how fast or slow a sale is going to take. You have to realize that a lot of time and energy will go into your investment. It is best to take the time you need to ensure everything goes as smoothly as is possible.

Investors have different reasons for buying property. Perhaps they want to rent it out, use it as a time share, or maybe you want to buy the property to fix up, and sell to make a greater profit once it has been upgraded. No matter what the reason is, it is going to take time until you see an increase in your cash flow. It is going to take time until you see the tax benefits you receive, capital appreciation accumulation, and receiving back what you put into it twofold. You cannot underestimate the time it is going to take. You just have to realize it WILL happen, if you are patient!

Mistake #2
Failure to Adequately Access the Seller and/or the Seller’s Agents

The highest numbers of return in real estate occur in investment sales. I know that investing is going to be very exciting the first time (and hopefully every time thereafter). You cannot let the excitement cloud your judgment. You need to check out everything. This includes the Seller and the Agent of the Seller.

You want to make sure the agent is reputable. He or she may be from a reputable, well-known realty company, or they may be a well-known agent (who works on their own) in the area. If you know the area, or know someone who lives in the area ask around. Perhaps someone knows him or her, has worked with him or her, or has heard things about the agent. They can give you some insight into their success rates, and can inform you of any problems the agent has had.

If the agent works for a company and you are unfamiliar with them or cannot seem to find out who they are by asking around try searching the internet. If they are that bad you may find something listed on a web site. You can also search for agents that work on their own. You may find their web site which can provide insight into the type of character they are.

You also want to check out the agent’s numbers. Are they a licensed Realtor? You should also be able to check them out by calling the company they work through and finding out about the agent, or through the city they work through. The city should have some sort of record if they are licensed, and perhaps they can provide a bit more insight into what kind of agent they are.

You need to make sure your agent is reputable, as well. Choose wisely. Check out their own numbers, ask around for the best in business if you are unfamiliar with the area, and even scan for real estate agents online. You can usually tell what kind of agent they are by their advertising/marketing strategy online.

Avoid agents that use tacky image marketing. You don’t want to see an agent’s picture plastered all over their website. You don’t want to hear their claims of #1 in sales or #1 real estate agent in my area. A lot of agents claim this, and you must remember that since so many agents are working on their own, it is truly hard to figure out who is the top in sales for any given area. Focus on what information the agent can offer you. You want someone that cares about your wants and needs not their own.

You need to investigate a bit about the seller. What kind of taxes does the seller pay? Are you going to need to make altercations, renovations, or upgrades to the property in the near future? What kind of expenses does the seller have? What is their payment history? What kind of rent did they offer (if they did) on the property? What kind of deposit will you need to make before purchasing the property?

All of this information can narrow down your search and ensure the transaction goes as safely as it can.

Mistake #3
Not realizing your Investment is Strictly Business

Be honest…you probably got into investing because you heard it was a good way to increase your wealth. It is true…there is amazing potential to increase your cash flow if you invest wisely. You want to make sure that you do not let your interest in your property waver, especially after the purchase is complete.

You may be facing some very hard decisions down the road. The wrong tenant may lead to some sort of eviction notice. You may decide to invest in more property, splitting up the time you spend focusing on each property. You should also have some sort of schedule. Manage your time wisely so you do not neglect one property. This can lead to tenant complaints and possibly very costly effects of said complaints.

Mistake #4
Inability to Balance Cash In and Cash Out

You should put a certain amount of cash into fixing up your property. Every month you will need to take some type of inventory, decide if anything needs to be added or fixed, and complete any necessary maintenance. The goal is to spend what you can by fixing the property up before renting it out. This will save you cash later on down the road.

You want to avoid a lemon of a property if you do not have the time or resources to fix it up. A property that eats the amount of money you put into it without giving you much of a profit can drain all of the capital you earn.

It is hard for novice investors to predict the type of property that has constant appreciation. I have seen far too many investment properties go belly up before they even got off the ground.

Spend your money wisely, and discuss your sale with an expert before purchasing anything, especially if it is your first time when you are buying investment property.

Mistake #5
Not having an Inspection

You NEED an inspection. A buyer of any type of property should have some type of inspection done. You need to hire a professional to get the job done correctly, not the job done halfway or sloppily. You should ask the seller if they have had any trouble with pests or rodents, what type of reoccurring repairs they have had to make, or if there is any structural damage to the property. An inspector can check the actual structure, but it is often hard to determine what kind of things have occurred or needed to be replaced in the past. If anything was constructed poorly the inspector WILL know!

Your real estate agent will insure you ask the right questions. They will also be available to make recommendations for inspectors. They will know the inspector’s reputation and make sure they get the job done correctly. This makes the job of finding an inspector much easier if you live out of the area.

Mistake #6
Not having Insurance

Like every other purchase of its type there is some sort of liability on investment property. You need to have insurance. You have to protect your interests. You won’t know what kind of tenants will rent from you, you may have a parking lot, you’re responsible for cars in the parking lot, and there is also the actual property you have to worry about. This list goes on and on.

You cannot buy investment property without insurance. Without the right insurance you could lose thousands (or even millions) of dollars in property damage, or to an unruly tenant.

Ask your real estate agent for a recommendation on a good insurance professional. You need to protect yourself and your property while you can.

Mistake #7
Failure to Read through every Document before Approval and Confirmation

There is no doubt you will be going through many different documents. The whole process can be overwhelming for an investor that has never gone through the process. You need to make sure you have all of the documentation you need before your sale is complete.

The real estate professional you choose should be capable of assisting you in this process. They will provide you with all the documentation you need, and inform you of any other type of documents you should get. They can help you read through all the real estate techno-babble and understand exactly what each and every document means.

If you aren’t receiving any of the following documents you may want to re-evaluate your real estate agent. Some of these will be used after your sale, and others may not apply to your situation (if you aren’t leasing the property).

* Zoning laws & information
* Insurance Documents
* Loan Documentation
* CC & R’s
* Inspection Reports
* Laundry Lease Documents
* Title Information & Documentation
* Purchasing Contracts
* Building Permits
* Health Licenses
* Rental and Lease Applications

With the right professional you will be sure to receive all the documentation you need to have a smooth transaction.

Mistake #8
Not getting a Bill when the Sale Occurs

You need documentation to PROVE the sale occurred and the property is yours. If they are selling the interior of the building (i.e. furniture, appliances) along with the outside get an inventory of everything included in the sale and have them attach it to the bill for those items. You will then have a copy in case any dispute over property occurs (this does happen on occasion).

You want the bill to be as detailed as possible that way there is no question as to who owns what later on down the road. Also make sure you both sign and date the bill and inventory list.

Mistake #9
Inappropriate Treatment of Tenants

You need to realize that if you have no tenant(s) then you aren’t going to be earning any type of money. You want to avoid tenants that try to terminate their lease (you can protect yourself from this with the right tenant contract so long as the tenant was living or working in a building that was suitable to live/work in).

If the tenant has complained about others in the building (if you have multiple tenants) that are a genuine cause for concern, and you do nothing about it or if your tenant is dealing with disgusting conditions (i.e. rodent infested property) you will probably be held responsible (and yes a judge would rule in favor of the tenant even if you had a contract saying they had to give you 30-90 days notice before leaving if they were living in a very bad situation).

It is best to deal with tenants by being pleasant. You need to appear friendly and helpful. If they have a problem, fix it as soon as you can. Be respectful. Treat them how you would wish to be treated. If they need something you should respond as soon as you can.

It is easier to deal with the little things while you can. Dealing with the little things eliminates the need for them to turn into bigger problems. It’s easier to deal with a tenant with a minor property issue then to deal with a vacant property.

You need to charge FAIR rent. You aren’t going to keep tenants if you charge outrageous prices for something that isn’t worth what you own. If there are repairs that need to be done…fix them! A property in tip top condition is going to accumulate more revenue because you can ask for a little more than if your property was decent, but in need of minor repairs.

Mistake #10
Failure to Select the Right Tenants that are Responsible and Qualified

You need to investigate all future tenants. Your application should be carefully written to ensure that you are not liable for damages to the property, and that the tenant is responsible for living in the property for a certain period of time (most contracts are usually 6 or 12 months). You also need to include information about security deposits, and what happens if they leave without prior notice.

This is what you are trying to prevent by investigating each and every applicant. Unruly tenants that cause trouble, or leave without notice can be a pain in your neck, and you should try to avoid these types of tenants at all costs.

You will want them to have references. The references should not be a family member. They should have former landlord references, financial references, a reference from their current employer, credit documentation, and their judgments.

You will also want to do a background check. You do not want someone living in your home that isn’t an honest individual. This is your investment, and you’ve put a lot into the property. You deserve to know what kind of character may be living on your property. You want someone you know is going to pay their bills.

A credit check is also necessary to make sure they are financially capable. The tenant should have their own documentation, but you will also want to do your own search.

If you can, drive by the home they live in currently. Do they seem to take care of their home? Is the yard messy? Is their garbage all over the place? How they treat their current home can provide a lot of insight into their type of character.

Mistake #11
Not having a Tenant Agreement that protects your Interests

You need to have a tenant agreement that protects you from every type of liability. Even after you have checked their backgrounds, credit, and references you still do not know the tenant. They could have sort of vendetta or temper that you were not told about.

You do need to worry about your tenants, but you also have to protect yourself from the wrong kind of tenant.

You can save yourself a lot of hassle by having the right information in your Rental Agreement. Make sure you include information on the security deposit, rent pricing, and how many days notice the tenant must give you before moving out. You may also require that they live on the property for a minimum of ____ (fill in the blank) months.

When the renter has been approved to move in make sure you have the tenant give you letters confirming they are your tenant. You also want to make sure their interpretation of the Rental Agreement matches your own.

Mistake #12
Not using your Cash from Investing to pay off the Property

The fastest way to make more money is to pay off the property. This lowers your interest, and allows you to keep all cash from your tenants because you no longer have to pay off the loan you owe on.

I have seen Investors that are so excited they were making a profit from their first property that they went on a shopping spree. When it came time to make their loan payment they were broke. This of course led to more problems.

You have plenty of time to spend your money, so take care of business before using the money for pleasure. You’ll be thankful you did in the end.

Investing can be a very rewarding thing if done correctly. It can be one of the most financially positive experiences of your life. Once you start investing it is hard to stop. The first time investor will probably buy more property once they get the hang of what they are doing…so long as their first experience is a positive one.

You can make your experience positive if you are armed with the right knowledge, and you avoid the 12 mistakes above that first time investor is likely to make if they do not know what they are doing.

If you have any questions about investment property, these articles, or your own personal real estate situation please feel free to contact me.