The following is an article written by Brandon Turner on Real Estate Investing and what not to do when considering real estate investments. It's well written and an excellent read...enjoy!
Have you committed one of the seven deadly sins?
No, I’m not referring to gluttony, wrath, or sloth. I’m talking about the Seven Deadly Sins of Real Estate Investing.
Ok, maybe they aren’t physically deadly – but they are possibly catastrophic to your business.
If you are concerned about the health of your investments, make sure to steer clear from these seven sins:
1. Buying Based On Future Value: Also known as “pro forma” numbers, many investors buy property based on what it “could” be worth, not what it is worth. Real estate agents are especially known for emphasizing the future possible value (they are the eternal optimists) but neglecting the facts on the ground. Make sure you don’t fall victim to this sin and always know exactly what the current value is and don’t buy anything for what could be.
2. Blindly Following A Guru: Real estate investing is not a system. Anytime I see that phrase I cringe just a little bit. The typical real estate guru would have you believe that by simply following a step-by-step system you can make millions in real estate. Millions can be made, but its not by following a system – it’s from following your brain. Investing is about solving problems, and if your “system” is unable to account for flexibility or challenges – your dead in the water.
3. Being Unrealistic With the Math
4. Relaxing on the Record Keeping
5. Confusing Investing with Gambling
6. Over Leveraging Yourself
7. Getting Bored and Getting Fancy
Have you committed one of the seven deadly sins?
No, I’m not referring to gluttony, wrath, or sloth. I’m talking about the Seven Deadly Sins of Real Estate Investing.
Ok, maybe they aren’t physically deadly – but they are possibly catastrophic to your business.
If you are concerned about the health of your investments, make sure to steer clear from these seven sins:
1. Buying Based On Future Value: Also known as “pro forma” numbers, many investors buy property based on what it “could” be worth, not what it is worth. Real estate agents are especially known for emphasizing the future possible value (they are the eternal optimists) but neglecting the facts on the ground. Make sure you don’t fall victim to this sin and always know exactly what the current value is and don’t buy anything for what could be.
2. Blindly Following A Guru: Real estate investing is not a system. Anytime I see that phrase I cringe just a little bit. The typical real estate guru would have you believe that by simply following a step-by-step system you can make millions in real estate. Millions can be made, but its not by following a system – it’s from following your brain. Investing is about solving problems, and if your “system” is unable to account for flexibility or challenges – your dead in the water.
3. Being Unrealistic With the Math
The one deadly
sin nearly every investor has made is not being realistic with the math.
Whether overestimating future value, underestimating the repair costs
on a project, or simply not taking the time to actually do the numbers-
poor math will destroy an investment.
4. Relaxing on the Record Keeping
For many
investors, “record keeping” is nothing more than an attic full of
vintage Barry Manilow albums (get it? “record keeping”… no? Okay, easy –
I’m an investor, not a stand up comedian!) If you don’t know the health
of your investments – how can you make informed decisions for the
future of your investments? By keeping adequate records and staying
up-to-date with your finances, you position yourself to know exactly how
well your investments are performing while also ensuring the long-term
stability of your investment plan. Additionally, keeping good records
makes tax time a breeze as well as simplifying the process when applying
for a loan. For more information on record keeping for investors, check
out Arthur’s post on record keeping.
5. Confusing Investing with Gambling
Do you invest
or do you gamble? Do you even know the difference? Buying something
with the hopes that it may someday bring a profit is gambling (or
speculating). Flipping, building spec homes, and investing in raw land
often resemble gambling much closer than investing. Notice I didn’t say
that gambling was one of the Seven Deadly Sins of Real Estate Investing.
The sin is not in gambling,
but in confusing the two. Each strategy requires a different skill set
and different financial resources. Be sure of what you are trying to
accomplish and make sure you have the tools necessary.
6. Over Leveraging Yourself
Perhaps the most
common real estate sin over the first decade of this century, over
leveraging is the act of carrying too much debt than what the properties
can maintain. If you are financing everything to the point that there
is no cashflow, it is very difficult to weather the storms when they
rise up. Just ask the thousands of bankrupt investors who learned this
lesson the hard way.
7. Getting Bored and Getting Fancy
The path to
wealth through real estate investing is not difficult, but it also isn’t
super fast. In an earlier post, I mentioned how real estate investing was like playing a game of Super Mario Bros.
The game is fairly simple and straightforward, thus easy to master. The
difficulty, however, is that once the system has been mastered it is
easy to get bored and decide to get fancy. Many investors know that
wealth and retirement can be created using real estate, but get bored
and try to hurry the process up by speculating and buying deals that
don’t fit their plan. This is a sure-fire way to lose most or all of
one’s wealth. Remember, it can take years to build up a solid retirement
portfolio but only one stupid mistake to lose it all.
BE SURE TO CONTACT ME FOR ALL OF YOUR REAL ESTATE INVESTMENT RELATED QUESTIONS AT 1-877-520-3700
BE SURE TO CONTACT ME FOR ALL OF YOUR REAL ESTATE INVESTMENT RELATED QUESTIONS AT 1-877-520-3700
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