So many investors set out with an idea of what they want to accomplish, only to find out they didn’t spend any time on some things they should have. There are more than three of course, but here are three things you certainly want to avoid.
Before we get going though, a word about house agents. I was one. For seven years. We have the same licenses, but operate in parallel universes, destined never to cross. I love house agents. In fact, when Trophy Wife and I move next spring, I won’t be representing us. I’ll hire one of my good house agent buddies — and they’ll get paid, not me, not a dime. Enough said. Let’s move on.
1. Avoid starting any process without having a lender experienced in the investment side of real estate. 1B. Don’t even think about offering to buy an investment property without being fully pre-qualified for the loan you’ll need — no exceptions…period.
The residential lenders all say they can do it for you, but most of them are clueless when it comes to income property, and how pros view them. Don’t make their delusions your grief.
2. Avoid using your neighbor, the friendly house agent guy, to guide you in the analysis and purchase of investment property.
This is a no-brainer. Just because your friend at work bought a rental from him last year, doesn’t make him an expert. You’ll ultimately pay not only for what you don’t know to ask, but for what he doesn’t know to look for. Besides, when it comes to real estate investment property, house agents don’t know what they don’t know.
Think about it — it’ll hit you.
3. Avoid buying locally just because you must be able to drive by your property. Are you buying for
growth? If your particular area isn’t growing, then having it near you means you probably took your money out of a 3% CD and put it into a 0% piece of real estate.
0% real estate? Helllllooo San Diego.
OK, everyone in unison – Duh. Get over your control issues unless it’s more important for you to be in control than it is to actually see your capital grow. This may be one of the biggest mistakes beginning investors make.
Using the wrong guy for your investment loan so often leads to financial heartburn. After that horse is out of the barn you’re pretty much stuck. Remedies tend to be pretty expensive. If you wouldn’t have your wife’s obstetrician operate on your bad knee, why would you turn over your hard earned capital to the guy handing out refrigerator magnets? Buying local instead of heading where the growth or cash flow is far superior, has always been a mystery to me.
There are of course, many more things for the beginning real estate investor to avoid. These three are a great start. Your lender, agent, and where you buy the dang things is kinda sorta important.
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Unless you are already experienced there is another word for a local real estate investment; tuition. Some are so crass as to call it the school of hard knocks. You pay the tuition, you learn. Hopefully. Out of area real estate investment costs more. If it doesn’t cost more fire whomsoever is pitching the deal and get competent people instead. What you get for those real costs is a better investment. Investment is not a synonym for hobby or education.
Robert — Depends on what you mean by ‘costs more’. Going from San Diego to Mayberry usually ends up with Mayberry real estate costing a LOT less.
If you’re referring to the opportunity cost of staying in San Diego vs buying in Mayberry, assuming Mayberry is growing, I get it.
The cost of the education is of no concern, as long as the investor never forgets the lesson for which he was charged the ‘tuition’.
Yeah both but mostly transaction costs. And I’m not complaining about those higher transaction costs either. In exchange you get expertise and management and a better deal on the investment assets.
As to opportunity costs the same thing. If it costs a little more to get out of a souring market sooner so be it. Money well spent.
Well said. I would have responded earlier but I was driving by my properties.
Chris — don’t you mean, sliding by?
56 degrees…not a cloud in the sky.
Exactly what I wanna hear.
Dear Bawlguy, Just want to say that I’ve been reading your blog for a while now (based on Chris Lenquist’s excellent recommendation). I love your writing style, and your words of wisdom. Your sense of humor really appeals to this transplanted Canadian. Keep it coming! Sincerely, Marjorie
Marjorie — It’s notes like yours that make my month. It’s cool every now and then to hear how folks are reacting to what goes on here.
Thank you — and tell Chris I said hi, and will see him soon.