5 Deadly Mistakes Most Investment Property Buyers Make

General Real Estate Investing
1

Hello to all,

This is some good information I have put together from a trusted source and wanted your comments on it. :wink:

Mortgage regulations have changed significantly over the last few years, making your options wider than ever. Subtle changes in the way you approach mortgage shopping, and even small differences in the way you structure your mortgage, can cost or save you literally thousands of dollars and years of expense.

Get the Right Information - Whether you are about to make your first investment or are a seasoned veteran, it is critical that you be informed about the factors involved.

Everyday people are considering purchasing an Investment Property and making some quick money. Donā€™t be fooled. Surely you would agree that investment decisions shouldnā€™t be taken lightly, and an Investment Property purchase is no different.

By taking these few minutes to acquaint yourself with the "5 Deadly Mistakes Most Investment Property Buyers Make" you can greatly increase your chances of making your investment successful and save thousands on your mortgage.

Not Making a Profit From Day One

Make sure your interest rate will allow for a positive cash flow when you rent the property. While you will hopefully make equity over time, cash flow is often a make or break consideration.

Choose the Right Amount For Your Down Payment

Twenty percent down used to be the necessary amount to get into an investment property, but today ten percent can be enough. Be aware that the down payment amount will usually influence your interest rate, and interest rate will determine your properties cash flow.

Not All Mortgage Brokers Are Created Equally

Be sure to ask your mortgage broker about available loan products, terms and rates, and when comparing brokers, be sure you compare ā€˜apples to applesā€™. A subtle difference could save or cost you thousands.

Your Real Estate Agent is Unlikely to Understand the Process and Unique Needs of an Investor

Your mortgage broker and real estate agent need to work in concert for the best possible outcome. Only hire a real estate agent with investment property experience.

Not Understanding the Purpose of Your Investment

Do you plan to ā€œfix and flipā€, rent, or sell the property to another investor? This is a big question in selecting the best mortgage product to meet your needs. Make sure you have considered this carefully and discussed all your options fully with your mortgage lender.

I hope this helps everyone!

Does anyone else have anything to add to these? ???

2

Good stuff. Itā€™s nice to be reminded that the sole purpose of investing is to make money, not lose it.

3

Absolutely correct. Thanks.

As an agent who invests myself and specialize in investors, I get too many beginners who want to break these rules. They think investing is easy and that they can get rich quick without much effort.

4

Well, we are ok on avoiding all the mistakes listed, and even have an offer to buy a property we havenā€™t even set a firm close on yet ! THAT was a surprise, as we figured to rent or lease/option itā€¦
We DO have 2 other closings set for next week (our first ones!)
Anyway, other sites have shown another deadly mistake NOT losted here:
Buying property more than an hour from your Home.
Guilty as all get out there:
Our entire focus is in an area over 700 miles away.
We fully plan to move tothe area within the next 5 years max. and see real value and good growth ahead.

5

I agree! Cash flow is king! Remember your investment (real estate, stocks, cds, whatever) is suppose to be working for you, not the other way around!

6

Nice to meet you.

I canā€™t agree with not buying far away.

I bought a condo in Mar 2003 in Kona Hawaii a 2/2 near the ocean sight unseen for $185K and I am renting it now for 2 years with a small Neg cash flow, and I just talked to the Realtor who sold it to me and he is going to list it this week for the going rate of $350K.

After fees and before taxes I will have earned $144K or about $70K per year on it and I never even saw it, just pictures that are up on my personal webshot picture sight.

I am going to use that money to invest in other properties in NC and I live in PA.

Happy Investing!

7

Nice to meet you.

I canā€™t agree with not buying far away.

I bought a condo in Mar 2003 in Kona Hawaii a 2/2 near the ocean sight unseen for $185K and I am renting it now for 2 years with a small Neg cash flow, and I just talked to the Realtor who sold it to me and he is going to list it this week for the going rate of $350K.

Hi Wallace.
good to hear.
We WILL have positve cash flow and bought the property at almost 20% below market. With a modest 8% growth plus cash flow, we should make a solid if not eye popping return within 3 years. Weā€™ll quadruple our initial investment at least.
Again, different strokes!
Good fortuneā€¦

8

Choose the Right Amount For Your Down Payment

10% down is good, but you can also get 5% and zero down loans, too. There are even programs out there that will allow you to get cash back at closing. Just remember mistake number one: Not having positive cashflow.

Also, another major mistake that Iā€™ve seen all levels of investors make is to NOT include ALL of the associated costs in your cashflow/profit analysis. Specifically, most donā€™t include any down payment and/or closing costs into their cashflow. IF you have to put 20% down to ā€œearnā€ a small positive cashflow, then it isnā€™t really a positive cashflow.

Raj

9

I agree, Roger. When I first started investing and used an agent, theyā€™d always quote the PI, but not taxes, insurance, management costs, maintenance, etc. It would often sound like a good deal before we started factoring everything in.

I even purchased a property because I thought it would cashflow $400/month, but found out that my agent didnā€™t even perform rental comps. They just used the figures the listing agent provided, which were completely wrong, of course.

10

This is an excellent point. Please make sure to factor in ALL your cost to see what your cash flow will be expected to be.

This is what I have been taught to do all the time.

Happy Investing! :wink:

11

ā€œI bought a condo in Mar 2003 in Kona Hawaii a 2/2 near the ocean sight unseen for $185K and I am renting it now for 2 years with a small Neg cash flowā€

Why would you buy something if you knew it had negative cashflow? Why not either find a property with positive cashflow, or use creative methods to have the property cashflowing?

12

<<Why would you buy something if you knew it had negative cashflow? Why not either find a property with positive cashflow, or use creative methods to have the property cashflowing?>>

ā€¦because in that time (2 years and 5 months) he has seen a capital appreciation from $185K to approximately $350Kā€¦that is an appreciation of $5,689.66 each and every monthā€¦that can quickly off-set a small negative cashflow. It is speculative but, in this case, worked.

Keith

13

Keith,

I hope you are doing awesome and your positive cash flow is running strong for you.

Getting back to what you posted, YES, You hit it right on the head.

The expected appreciation was hard to pass up. It was negative only about $300 a month is all.

At present the condo has not sold so I just lowered the price to $363K to see if I can move it. It will still be a good profit even if I have to go down to $350K.

UPDATE: 10/1/05 I am pulling the condo off the market, having it painted inside, doing another 6 month lease and may decide to try again in Jan when the Hawaii market is hot.

The 15% capital gains tax, and Hawaiiā€™s 5% tax is a Kick in the pants.

I still have never even seen the condo.

Will let you know how it goes.

Happy Investing to all! 8)

14

Donā€™t you find that alot of investors buy for the capital gains and the tax write off from the -ve gearing? Itā€™s not how I buy but itā€™s a concept sold heavily down in NZ.

Sarah

15

i bought a house a year ago sight unseen and just sold it for a 80k profit. iā€™m not too
stoked about the 15% fed cap gains tax + CAā€™s 9% tax so i did a 1031 exchange to
buy two homes in SLC that should cashflow $800/mo. 12% return isnā€™t exactly
earthshattering, but it beats paying taxes!!!

16

Yeah, I guess Iā€™m not too used to thinking about capital gains tax :wink:

The exchanges that you guys can do sound like a handy way around it.

Sarah

17

not only that you can refi after close and pull the money back out
to re-invest elsewhere[but there are certain limitations so ask your
CPA]