You have finally had it! You’ve seen your 6 millionth infomercial with that guy in his neatly pressed, button-up white shirt. You know who I am talking about, the guy that is grinning ear to ear waving his no-money-down, rags-to-riches real estate investment course in your face. You can buy it today for only 3 "easy" payments of a $99 dollars (but only if you call now) and after all these commercials you are now thinking, "This looks like a great deal. I better get it fast before that special offer expires."
I am not saying this guy isn’t telling the truth about his story, but no matter which course you buy, there are several key things that you must avoid when engaging in any real estate transaction. Below are my 3 basic tips to avoid some of the common real estate pitfalls.
1) Don’t Overpay
The whole point of investing in real estate is to find properties that are undervalued. How do you determine what is undervalued and what is overvalued? Without getting into the technical details, the bottom line is you need some experience.
Here's the biggest problem. Real estate is usually the highest ticket item you will ever purchase in your life. It’s highly advisable to stick with just one market area, probably the one closest to you as a starting point. Through your own experiences, and asking the right questions of your new best friend, the realtor, you will eventually develop a pulse for the market. At that point you can then identify what is, and what isn't, considered a good buy.
2) Know the Market
Yes, you are actually going to have to do more work than that guy on TV says you will!
This part is really just common sense, but executing is where the beauty and the payoff can be huge. How do you make money in real estate? It's the age old expression, buy low and sell high. Thankfully, having studied the first step, you have identified some general trends in the value of homes in your market. You are now pretty good at spotting undervalued properties. Assuming you can acquire that home, you may want to profit by selling it off to someone else for a higher price. How can you do this?
Making upgrades to the property will automatically raise the price of the home if you know what your market expects AND will pay for. Always think in terms of what the market wants, not what you would personally want. You aren’t the one buying the house. You are the one trying to sell it to someone else for a higher price than you paid.
If you know your market, then you will also know areas that have a premium based on location. Sometimes a house is worth 30-40% more just because of where in the market it sits. Always factor location into your decision making process as well.
3) Know Your Budget
It should be common knowledge that you can't go through life on a whim, but real estate is a serious business, and diligent financial planning and budgeting is critical to your success. You don’t need to be a mathematical genius, but you do need to be disciplined with your money and stick to your budget. Otherwise, you may find that you are going over your planned costs. Always budget ahead of time as to what is needed in the property (and what the market desires), before actually going forth with investing in any piece of real estate. Allow for mistakes and unforeseen expenses as well.