This is not an all inclusive list; some mistakes are mine, some are from others.... remember, it's much easier to learn from the mistakes of others - and less costly......
Not performing Due Diligence. (This means on the property as well as the market). Before you begin to even look at property, set your objectives and examine the market and what acquisitions will best meet those objectives. Look at rents, trends, vacancies, new construction, and permit applications. A good real estate broker can help you through the process. For example, in our office we have a list of projects that are permitted in a given area so we can advise clients of upcoming competition. Once you place a contract on a property, you need to prepare a check list of due diligence items that need to be addressed regarding the physical attributes of the acquisition. From environmental inspections to zoning, from utility capacity to access; hire a competent engineer to examine the mechanicals and the roof and the major building components. One often overlooked due diligence item is the future road plan. Is there a widening in the future? How about curb cuts? Is there a median in the future plans?
Falling in Love with the property. Ignoring facts in favor of emotion. Years ago I had rental property on Fort Myers Beach on a canal. I found out the fourplex across the canal was for sale. When I inspected it with the seller, he told me the price he was trying to sell it for; I compared this price with the rent – I was shocked. The price was about four times what the rents justified... He said, but Gregg – it's on the water! I replied, “Hey, I am an investor, if I can't get the rents because it is “on the water”, why would I buy it because it is “on the water”? Now, don't misunderstand me, this may or may not have been a good investment for a long term appreciation play. But the numbers didn't work for an income property. Keep emotions out of your income property purchases. Either you or your agent should prepare a financial analysis, with your assumptions as input.
Underestimating time and costs for improvements and upkeep. Both will cost more than you think and take more time. Don't make the mistake of letting your desire to own this showpiece property sway the cost estimates to make the deal look better just so you can justify your purchase decision. I once bid on a rehab house. In my cost assumptions I assumed I would have to put a new roof, new windows, new furnace and air, new drywall, new plumbing, new kitchens and new baths. A total overhaul. I lost the bid. Three months later the seller contacted me back and asked if I was still interested. It seems that the higher bid fell out during due diligence. Too many repair costs. In the end I go the house at my price... It seems that the only thing I was wrong about was that the house did not need a new roof!
Thinking you will get mortgage rates that are advertised on TV and the internet . Interest rates for investments properties are higher and generally the amortization periods are shorter. Do not forget to estimate 20 or 25 years instead of 30 for the amortization period.
Buying price over location. A common error is to buy a lower price investment in a lesser location. In general you will be better off with the superior location rather than the lower price. The old adage is true: Location, location, location. You will find that the better location will have a lower vacancy factor and better appreciation of resale values and rents,
Not preparing for a worse case scenario. This has never been truer than in today's market. There are some buyers that bought four homes in preconstruction and now are sitting with four empty homes that they cannot sell OR rent I always tell me clients, if you can sleep with the worse case scenarios, then the deal is ok. If you can't come up with a bunch of answers that are satisfactory to a litany of “what if” scenarios, you are better off with out the deal.
Not examining alternatives. This is one of my favorites. So, you decide you have $50,000 to invest in real estate and you want to buy the cute duplex across town. WHAT ELSE CAN YOU DO WITH THAT MONEY? Ask your real estate professional to help you, but then look outside real estate. Look at all your alternatives and make sure you are choosing in accordance with your long term objectives and your tolerance for risk. My feeling with looking at alternatives is this: You have already made the commitment on the $50,000. Fine. Now let's make sure the next level of commitment is correct.
Not preparing an exit strategy. Always know where the back door is. How will you sell or exit this investment? Remember, you make your money when you buy, not sell. You get to decide what you will buy for, but the market sets your sell price. Sit down and plan the timing of your exit.
Following the crowd. Remember Mom asking you, “So, if your friend jumped of the bridge would you do that too?” There has been a herd mentality in investing. It happened in the Dot Com boom and it happened over that past years in real estate. This goes back to buying with logic, not emotion.
Over leveraging. Pretty simple. Have enough fluff in your plan for contingencies that you may have overlooked. Leave some credit available for emergencies. I once had a mentor tell me, “if a deal had $1.00 a month positive cash flow I could do a million of them, but how many do you think I could do if I lost $1.00 a month on every deal?” Put enough cash down so you are comfortable with the leverage.
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Market America Exclusive Marketing & Leasing Agents for The Diplomat Shoppes at Del Prado in Cape Coral
Market America Realty Investments, Inc., a Ft. Myers Real Estate Services Firm announced that the firm has been selected as the exclusive marketing and leasing agents for The Diplomat Shoppes at Del Prado in Cape Coral . The Diplomat Shoppes at Del Prado is a mixed use office and retail center near the intersection of Del Prado Boulevard North and Diplomat Parkway East , just north of Pine Island Road . Plans call for approximately 40,000 square feet of office and 35,000 feet of retail and restaurants. For leasing information contact Gregg Fous , 239-425-0771or visit www .ma-realty.com .
Downtown Fort Myers
Market America Realty and Investments, Inc. will put a new emphasis on the downtown condo and commercial market. To his end I am pleased to announce the addition of Sally Bond Lowrey , CCIM to our professional team. Sally will concentrate her and the teams efforts on developer representation downtown and re-sales of waterfront condos along the river. She will be building a team of downtown specialists over the next 90 days and is now adding listings along the river. If you have a condo to sell downtown, Sally is the one to talk to. If you are a developer looking for a marketing team to handle your project, give us a call. We will be making a major investment in Downtown Fort Myers. Fort Myers is getting ready to explode and we plan on being part of that growth. If you have downtown experience as an agent and want a global approach to selling, you need to contact Market America Real Estate and Investments, Inc.
Until next week,
Call us if we can help you. 239-425-0771.
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Gregg Fous
Gregg@ma-realty.com
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