subject: Real Estate Business 6 Deadly Mistakes [print this page] Investors in the real estate business can make mistakes when the market is up as well as when the market is down. When the market is down the results of those mistakes tend to be even worse. Just because you have all cash or plenty of back-up does not mean that you cannot make a mistake.
The investors with the least money tend to hype it up when trying to get others into their deal. Every person that has something to do with the deal needs to have some skin in the game.
Some of the mistakes that investors make are discussed below.
1.Violating the Securities and Exchange Commission laws: Investors get so caught up in trying to make a big profit that they try to get a number of other people involved in their deal. The SEC violation comes when you promise a Guaranteed Investment yield on real estate. There are people in jail for doing such things. There are ways to involve others in your investments and one of those ways is to have all parties have some sort of direct ownership in the property.
2.Not doing through due diligence: You can lose your shirt by omitting one little piece of information, such a zoning laws. Environmental laws can also be a big issue, so do not ignore finding out about these potential problems. A few years ago I found a property where I wanted to build a small apartment building. Everything seemed to be going well then I found out that there was an endangered bird near the property so I would not be able to build.
3.Starting to build a commercial building before getting permits for everything: Many building departments will allow you to start building your structure when you get the site plans approved, even before all the plans for the project are approved. Dont expect one department of the government to actually talk to another department. You may have as little as a 50% chance that everything about your plans will be approved. A contractor friend of mine got a permit to install 150 windows. In the middle of his project the county changed the requirements and he had to change all the windows he had already installed.
4.Not getting a survey done before you buy: Property lines need to be established clearly before you purchase. Any possible disputes or problems need to be handled before you take the next step. The former owner may tell you that there is enough land for you to build your mini storage unit complex. He could be right about the past zoning, but the property laws may have changed since he last checked. The zoning laws may now require a lot more land to build your complex. Sellers are not usually out to take advantage of you but it is not their responsibility to do your due diligence.
5.Expecting someone else to do your due diligence: This is especially a problem when you get involved in an investment in another state or out of your area. Keep in mind that no one cares as much about your money as you do. You may know the laws and problems in your area or state but you may not know the laws in the state you are looking to invest. If you have a partner who lives in the other state then send him a very long list of things that you want answers to before you take the next step. Never assume that someone else, even a partner, will get all the answers you need and want.
6.Not finding out about the state of the area economy: Just because your area population can continue to support an apartment building does not mean that the area where you are looking to invest can continue to support all of the apartment buildings in that local area. Find out about the unemployment rate, other properties that are selling, plans in the county, growth trends in the area and much more. What good is it to own an apartment building if there are no renters? This can result in a huge drain of money. Notwithstanding all the other problem that come with a low occupancy rate.
You cannot imagine the problems that you can encounter, especially when you are not prepared. When you go into the real estate business prepared for all kinds of things, you will do a lot better, make more money and not have a heart attack in the meantime just because you did not cover all your bases.
The more education and information you obtain about the real estate business the better you will be prepared. Just because you have all the education, experience, money and experts to help you there is no guarantee that you will not run into problems.
by: Sara Reid PhD
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