Investors in the real estate business can make mistakes when the market is up as well as when the market is down. When the market is down the results of those mistakes tend to be even worse. Just because you have all cash or plenty of back-up does not mean that you cannot make mistakes.
The investors with the least money tend to “hype it up” when trying to get others into their deal. Every person that has something to do with the deal needs to have some “skin in the game”.
Here Are 6 of the Most-Common Deadly Mistakes Investors Make
1. Violating the Securities and Exchange Commission laws: Wanna get in Hot-Water with your real estate business? Many investors get so caught up in trying to make a big profit that they try to get a number of other people involved in their deal. The SEC violation comes when you promise a Guaranteed Investment yield on real estate. There are people in jail right now for making this deadly mistake in their real estate business. There are ways to involve others in your Real Estate business financially and one of those ways is to have all parties have some sort of direct ownership in the property. It’s called getting Private Money investors. They’re good for the Real Estate business, but there are certain govt. regulations about how you go about finding them. Read more on Private Money Investors
2. Not Doing Adequate Due Diligence: You can lose your shirt by omitting one little piece of real estate business information. Zoning and Environmental laws can be a big issue, so do not ignore finding out about these potential restrictions, regulations that may affect you as the new owner. Many current owners are ‘grandfathered in’ and so newer laws might not apply to them, but as soon as ownership changes hands, the new laws / regs come into play. Don’t miss this one. A few years ago I found a property where I wanted to build a small apartment building. Everything seemed to be going well then I found out that there was an endangered bird near the property so I would not be able to build. (of course I sent an angry Tweet to all my investing buddies:) Lesson: If you’re going to get into the Real Estate business, do your proper due diligence and be mindful of these 6 deadly mistakes.
3.Building-Renovating-Or Making Additions Prior to Permit Approval: Many building departments will allow you to start building your structure when you get the site plans approved, even before all the plans for the project are approved. Don’t expect one department of the government to actually talk to another department. You may have as little as a 50% chance that everything about your plans will be approved. A contractor friend of mine got a permit to install 150 windows. In the middle of his project the county changed the requirements and he had to change all the windows he had already installed. Seasoned contractors and investors have all learned that this little part of the real estate business is one to keep a close eye on.
4. Not Getting a Survey Done Before You Buy: Wow, this is a huge problem-area for properties that have not changed hands in a long time, where a ‘good-ole-boy’ hand-shake deals were the norm. These days any easements or special arrangements regarding the property are recorded at the courthouse. But years ago, they weren’t. This is also still true in many small-country-towns have not come into the 21st Century and stuff is still not recorded. Be sure to get a current survey, including all easements, utility crossings, etc. The real estate business has a way of making the un-prepared lose their shirt. But you can avoid that by getting up to speed. Here’s How
Property lines is another issue, they need to be established clearly before you purchase. Any possible disputes or problems need to be handled before you take the next step. The former owner may tell you that there is enough land for you to build your mini storage unit complex. He could be right about the past zoning, but the property laws may have changed since he last checked. The zoning laws may now require a lot more land to build your complex. Sellers are not usually out to take advantage of you but it is not their responsibility to do your due diligence. This is one good way to kill your real estate business permanently, dont’ leave this out.
5. Expecting Someone Else to Do Your Due Diligence: This is especially a problem when you get involved in an investment in another state or out of your area. Keep in mind that no one cares as much about your money as you do, its’ YOUR real estate business…treat it as such!
You may know the laws and problems in your area or state but you may not know the laws in the state you are looking to invest. If you have a partner who lives in the other state then send him a very long list of things that you want answers to before you take the next step. Never assume that someone else, even a partner, will get all the answers you need and want. For larger purchases, I’d want to lay my eyes on the property before closing at some point, even if my team did allot of the pre-work. (Several of the Niche Videos we have cover this in good detail. See Nich Video Series in the right hand column)
6. Not Properly Analyzing the Local & Regional Economy: Just because your area population can continue to support an apartment building does not mean that the area where you are looking to invest can continue to support all of the apartment buildings in that local area. Find out about the unemployment rate, other properties that are selling, plans in the county, growth trends in the area and much more. What good is it to own an apartment building if there are no renters? This can result in a huge drain of money. Notwithstanding all the other problems that come with a low occupancy rate. Believe me, this is no way to run a real estate business if you actually plan to make money.
You can make the transition from single family investing to commercial (or start with commercial) and many of the same rules apply. However, there are key differences and you need to make yourself aware of them.
You cannot imagine the problems that you can encounter, especially when you are not prepared. When you go into the real estate business prepared for all
kinds of things, you will do a lot better, make more money and not have a heart attack in the meantime just because you did not cover all your bases.
The more you get up to speed on how to safely invest in commercial real estate for a profit, the better you will be prepared. Just because you have all the education, experience, money and experts to help you there is no guarantee that you will not run into problems.
Here are 5 easy steps to making good profits from commercial property. Learn these critical must-dos through our Free 7 step email series. 7 Steps to Profits
The Real Estate Business can be fun and profitable, but as with anything, there are deadly mistakes and it’s important to know how to avoid them