How to Finance & Build 10K/month Cash Flow from Rentals!

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6 Beginner Mistakes with Real Estate Investing

There are a lot of mistakes that can be made in Real Estate. In fact, many savvy investors still make mistakes or have overcome huge mistakes in their investing careers. The keys are to recognize, avoid, learn and move forward from these potential pitfalls. Here are 6 beginner mistakes when investing in real estate.

  1. 1. Speculate – Most new investors follow the herd, listen to the media and buy with the hope the property will appreciate. This is as much of a gamble as hand picking stocks or going to the Casino. Buy below market properties that cash flow.
  2. 2. Buy at Market Value – Beginners almost always buy property straight off the MLS for market value. You can find deals in any market and there are always distressed properties. Cherry pick from distressed properties at 70% or less of market value.
  3. 3. Fall in love with a deal – Many beginners are guilty of this one. Their first few deals they spend minimal time finding a deal. As soon as a prospect is located, they fall in love and do anything to get that property. Emotions drive the decision, instead of making an informed business decision. Key is to get as many prospects that fit the criteria into the pipeline, filter out the duds and cherry pick only the best deals.
  4. 4. Put too much down – Real estate is an OPM or Other People’s Money industry. You should minimize how much of your own money is in a deal. And always make sure you have plenty of reserves to handle any not so pleasant surprises.
  5. 5. Only 1 exit strategy – To minimize risk, it is imperative to have multiple exit strategies. If you cannot flip a property you can quickly end up upside down, behind in payments and lose the property and your credit. Instead, buy below market properties that cash flow. That way you can sell retail, wholesale, lease option, seller finance, refinance, even rent and hold.
  6. 6. Buy in Warzones – It is wish to buy property at a deep discount. In today’s market you can find huge discounts in many areas with the glut of foreclosures. Do your due diligence. Buying a property for 20K worth 80K sounds like a slam dunk, but not if the property is vandalized multiple times during repairs, surrounded by 20 other foreclosed properties and there is next to zero interest from renters or buyers due to the location in or near a warzone. Make sure there is strong demand from renters and/or ownership in the area.

Many gurus make real estate investing sound so easy. News flash, it is not. Many beginners make one, even all of the above mistakes and have a miserable first time investing experience. Whether you are a beginner or an expert, it is always a great idea to get as many expert opinions as you can. They will make you aware of many potential mistakes and red flags. Play the numbers game and cherry pick from as many prospects that meet your criteria as possible. Also always do extremely thorough due diligence. And finally, happy and profitable investing!!

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8 Responses to 6 Beginner Mistakes with Real Estate Investing

  1. Derek Zasaretti says:

    I seem to fall victim to rules # 3, 5 and 6. I buy a property for 7k , Fix up with another 2 to 3 k. And rent and hold. I find it hard to sell because of the small capital investment, and figure a return of 50% in the 1st year with rent. I know the M.V. is at least 60k. But I am not willing to sell for 25 to 30 k. Even though I would grossly net 15 to 20k on the deal. Am I looking at this in the wrong perspective.

  2. Ryan Moeller says:

    Hey Derek, thanks for the comment. #6 would be my only concern as you have the luxury of multiple exit strategies and the numbers make sense to hold, lease option, refi or flip. I know other investors who will only invest in warzones too and they make it work. They are really thorough with their property management, even carry a gun to the property.

  3. carl says:

    Hey Ryan,

    I am a Newbie Investor wanting to start flipping REO’s. I have a question for you…I guess two questions:

    1. How do I structure a simultaneous close if the seller is requesting that I use their escrow company?

    2. What is the best way to find qualified buyers for these REO flips?

    Looking forward to hearing from you. Thanks

  4. Ryan Moeller says:

    Rules differ depending on the state. I would talk to local investors who have done simaltenous closes from your contacts, at REI clubs, and online forums. What is stopping you from using your own escrow company? It shouldn’t matter to the seller.

    There are various ways to build a buyers list. Advertising property online, REI clubs, offering advice and information to investors and finding out what they are interested in, etc.

  5. Larry Askins says:

    Carl, What state are you in? Virginia just passed a law that the buyer chooses the escrow company…. this precludes the seller from forcing you to use his. Hope your state has the same law.

  6. Mary Ann says:

    In Southern NJ the common practice is for the buyer to choose. North Jersey is a different world; they use lawyers for all their real estate transactions.

    Good post Ryan, I agree cash flow is the bread and butter, but appreciation is the golden egg in my retirement nest.

    Enjoy a safe hoilday weekend.

  7. Short Sales says:

    I am thankful I found an informative post like this. It seems that we all want to be legible in all matters.

  8. newbook says:

    A good article that I found today. Thanks for your post.

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