Joe Capote – Certified Investment Agent Specialist Expert in Real Estate Investments and Properties

There are many ways to sink transactions, fall into poor investments or inadvertently decrease returns. Investors commonly fall into traps that turn possibly lucrative investments into mistakes. Your success as an investor requires that you be aware of these pitfalls and plan to prevent them.

Emotion vs. Logic

Pitfall: Buying on emotion, not math.

Solution: Always to the math before buying, and have a definition and expectation of minimum returns.

Home buying as an investment should be solely based on logic. The investor should be reminded that it is not them living in the house, but someone else.  A property, if the math is good, will always be the right property for someone. Investors who buy on feeling are speculators, not investors.

Dealitis

Pitfall: Thinking that every property is a good deal, and that buying properties Just Because they are a good deal.

Solution: Know how to increase returns and have an exit strategy.

Just because a property is inexpensive does not mean it is bound to collect handsome returns. If the area value is low, the house is unrentable or the repairs are prohibitive, the property is not a good deal, no matter what the price.

Analysis Paralysis

Pitfall: Spending too much time analyzing and not enough time acting.

Solution: know that offers are not binding, set expectations and find a property that meets your needs and close on that property.

Investors need to be reminded that there should always be time to back out of a transaction with a properly written contract if it doesn’t seem right. This is what inspection periods are for. Too much hesitation can lead to missed opportunities.

Overpaying

Pitfall: Unwittingly spending too much time on a property.

Solution: Always know the cap rate and cash-on-cash return, along with local market values.

The cap rate lets investors know the expected return on the property relative to the value of the property. Properly evaluating the cap rate and cash-on-cash return will help ensure a good investment purchase.

Overleveraging

Pitfall: using too much leverage when buying.

Solution: Avoid risky loans and never buy for appreciation. Always purchase for cash flow; appreciation is a bonus.

Overleveraging will decrease cash flow and substantially increase interest payments over time. Risky loans cannot always be refinanced. Some markets don’t always appreciate. Take advantage of leverage, but beware of overleveraging. I can definitely help you determine the amount of leverage that is right for you!

Management Problems

Pitfall: buying a property that is difficult to manage.

Solution: Be aware of limitations and regulations.

The last thing any investor wants is to lose money managing an investment. Knowing the limitations of a property, neighborhood, and investors can prevent too much money diverting from NOI to operating expenses. It’s easy to get in over one’s head, and proper management of the property is a key aspect of a successful investment. I will work to help you understand your management options during the initial consultation to determine what is right for you.

Not using an Agent’s Investment Team

Pitfall: Getting advice from the agent only.

Solution: Work only with agents who have a qualified investment team.

As a Certified investment Agent specialist, I certainly have the knowledge and vocabulary to communicate with real estate investors of all types. However, the professionals on my investment team are professionals for a reason. They have years of education and experience under their belts towards their areas of expertise. Beware of any agent who does not have an investment team in place, or does not want to refer you to the proper professionals for advice.

Contact Me today for a consultation on your investment strategies, or sign up for one of my upcoming investment seminars!