Realtors often preach about all the ways you can make money in real estate. Rarely are we told about how we can lose money. As a real estate professional, and I’m here to set the record straight.
Here are 10 sure fire ways to lose money in real estate:
1. Not Understanding The Investment
Never put money into an investment you don’t understand. Get advice from a professional who does. A good attorney can be your best friend when it comes to investing. Get your advice from someone who has successfully done what you are trying to achieve – ideally someone independent from the transaction.
2. Not Understanding Tax Implications
Plenty of people are learning this lesson today. Anyone who did a short sale or walked away from a property may be facing debt relief taxes this year. 1031 Exchange laws are strict and auditors are now actively auditing those who claim real estate professional status. Never make any financial moves without the advice of a CPA who specializes in real estate and understands our ever-changing tax codes.
3. Believing, Not Seeing
There’s wisdom in the old saying, “You’ve got to see it to believe it”. Too many people are buying U.S. real estate today based on what they are being told, without verifying it themselves. It seems obvious, but never buy a property you haven’t seen – especially from someone you haven’t met. Believe it or not, it happens all the time.
4. Saving $350 on an Inspection
It’s fairly easy to protect yourself in real estate by ordering an inspection and an appraisal. It could be the best $350 you’ve ever spent. Make sure the inspector is representing you, not the seller. Not all inspector’s are licensed and some may point out problems just so they can go in and fix them. Get guidance from associations like www.ashi.org and http://www.appraisalinstitute.org/
5. Trusting the Internet
This could be the #1 source of buyer regret. Just like on-line dating services, everything looks better on the internet. Nothing beats a real-life meeting where you can walk the property, drive the neighborhood and see who lives nearby.
6. Doing it Yourself
If you’re not a contractor, property manager, lawyer or accountant, don’t act like one. Using the services of qualified professionals will pay off in the long run. No one wants to inherit low quality work, except the IRS. They thrive on your weaknesses. Anyway, how much is your time really worth? You need to add that in to the equation when calculating returns.
7. Confusing High Distress With High Profits
Money can certainly be made when purchasing distressed property for a discount and then fixing it up. But when the entire area is distressed, no amount of fixing will help. When the majority of properties for sale in an area are foreclosures or short sales, you are no longer getting a deal. You are buying at market value. (Las Vegas) And what will you do with your property? If you plan to live in it for at least 5-7 years, you may be fine as long as the area doesn’t suffer from high crime. If you plan to rent it or sell it, you will have lots of competition. Competition in real estate means lower prices.
8. Breaking S.E.C. Laws
If you are raising money to buy real estate, you may be entering into securities territory. If you are lending money to someone who wants to buy real estate, you may be entering the twilight zone. Always get legal advice before borrowing or lending money to anyone (especially family or church members.)
9. Not Getting Enough Insurance
It’s no fun, but you’ve got to read the fine lines – or get an attorney to do it. Get as much insurance as you can get. It doesn’t cost much more but will cover things you may not be expecting. And read the fine print, or have an attorney do it for you.
10. Taking Poor Advice
Everyone seems to be an expert when it comes to real estate. Don’t listen to your neighbors or your hairdresser, unless they are super successful real estate investors. Get your advice from someone who’s successfully done what you’re trying to do.