A Ten Part Series on Mistakes Real Estate Investors Make and How to Avoid Them Part 1 of 10.
Big Mistake Number One: Lack of Capital
It's almost inconceivable the amount of people who want to get into real estate investing with insufficient capital. This is thanks partly to the no-money down gurus that teach long shot, hypothetical and unlikely investment techniques for the sole purpose of filling hotel ballrooms. Coincidentally, when there are no qualifying factors to investing, everyone is a customer for your seminar! No matter how good some brand new special technique sounds, in reality there are techniques that work once out of a thousand times, some that work one out of a hundred, and some that always work and are reliable; getting great discounts by using cash is one of them. And by cash I also mean cash alternatives such as hard money and lines of credit. Cash has been King for a very long time and should continue to be into the future. The only properties you can get for close to nothing down are the ones you don't want to own. If you want a fair shot at success in real estate investing you will need to wait until you are in a position to invest responsibly. An investor will need capital for a substantial down payment of 10-20%, a reserve equal to about half of the repair budget, and six months of carrying costs at a minimum. Investors get into tough situations when they run out of capital. There's nothing worse than not being able to realize $30,000 in profit because you don't have $2000 to make two payments until your property sells, or having to fire-sale away all your equity to avoid damaging your credit or going into foreclosure. The more capital you have the more options you will have available. When you have capital you can afford to lose money on one house and make money on three over the course of a year. $20,000-$30,000 should be the absolute minimum to have on hand before venturing into buying distressed houses. If you don't have it, you can make some sacrifices and develop a good savings plan, or you can find a partner that has some money and trusts you with it.
Part 2 of this article will cover “Waiting for the Perfect Deal“.