Regardless of what endeavor you undertake, you always want to succeed. However, the harsh reality is people do fail in spite of the hard work they put in. Some of the reasons for failure are negligence, silly mistakes and being complacent.
Failure is quite common to real estate investors and sometimes it can be so severe that these investors can get bankrupt. But why do real estate investors fail? What are the mistakes that they make? Here are the five major reasons:
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1. Too Many Risks
It all starts with risks which is inherent in investment. But when the risk gets so high that you have to pull out equity or refinance other properties, it means you are heading to bankruptcy.
Risk is involved in any kind of investment, including real estate investment. However, it is important to understand the different ways to navigate through these risks in order to succeed. Future is indeed unknown. Thus, it is best to keep a track of potential threats, keep reliable people along and as far as possible avoid getting close to problems.
2. Lack of Knowledge and Experience
It is very important to first understand what real estate market is all about and only then plunge into it. Don’t start buying properties because you think that’s the right decision. Understand how effective it would be to buy property, where to buy the property, what kind of property to buy and where to look for financing.
Gain enough knowledge prior to make informed purchase decision. Do your groundwork by reading books, magazine and online articles, real estate news and talk to knowledgeable professionals who are well versed in real estate investment.
3. Legal Issues
Often lack of legal knowledge leads to problems while drawing up contracts. So, as an investor, you should always have a knowledgeable and reliable lawyer at your side who know real estate laws of the state you are making the purchase in.
Let your lawyer handle the legal aspects of the purchase, but make sure you are in the know. This will ease your burden and allow you to focus on what you do best – real estate investment.
4. Finding Tenants or Buyers
Once you buy the property, next step is to do something lucrative out of it. The best is to sell it off to make profit or rent it. However, investors often find it difficult to do so. In such a situation, it is best to build up a network of prospective buyers and be in regular touch with them. If you can’t do it yourself, employ an assistant to do it for you. Timely communication is the key! If you get calls from prospective buyers, don’t delay.
Remember you will have to spend money to upgrade the property so that it becomes attractive for prospective buyers and tenants.
5. Economy
Whether we agree or not, economy too has a big role to play in the success or failure of real estate investors. People wait till the economy is perfect and prefer not to take risks. However, this can mean an endless wait.
Remember economy is recurring. Hence, you should be looking to buy properties when they are priced low and selling them when the market demand is higher than the supply. This will allow you to make a tidy little profit on your investment.
The Bottom Line
A careful analysis is the crux of all successes and failures and this holds true for real estate investors, as well. Your math and analyses should be correct while investing since the future is not known. This means you need to do lot of analysis of every aspect of the real estate market. Evaluate the deal, legalities, risks, the economy and everything else you can think of before investing. This way you can’t go wrong.
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Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287
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