You need to Avoid the various Pitfalls
As I’m sure you realise, all investments carry some risk. In real estate, your three potential pitfalls are:
- Over borrowing.
- Poor assessment of the marketplace.
- Buying property with fragile tenants.
Here are 12 Vital Principles
You Should Strive to Follow …
What’s important is for you to stay just below what we affectionately call your “Threshold of Insomnia”.
This is the point at which you start to lose sleep — perhaps it’s through over borrowing, or maybe by making a poor assessment of the market. However, to give you a hand … here are a dozen Dos and Don’ts, which seem to have stood the test of time.
- Do maintain enough cash reserves. Nothing cures investment insomnia faster than having enough cash to meet any planned (or unplanned) obligations. And keep a sharp eye on smaller items, like equipment and maintenance bills, which can quickly add up.
- Do make an investment plan with which you feel comfortable and then stick to it. You need clear Investment Objectives & Buying Criteria.
- Do get a good financial calculator, or software program; and learn to use it properly. (The Hewlett Packard HP-12C calculator is simple and small, yet has tremendous capability).
- Do keep up your pursuit of knowledge … attending seminars, staying up with current trends, plus monitoring the news and legislation affecting real estate. Knowledge minimizes your risks and maximizes your profits.
- Do retain (and retain means pay fees to) a top consultants. The money you pay them will be more than returned to you in the deals they’ll pull off for you.
- Do avoid personal guarantees on mortgages wherever possible — try to make the property your sole security. (This is known as non-recourse finance)
- Do commit only a small part of your funds to speculative investments. They may appear glamorous on the way in, but they are often painful on the way out.
- Do not make deals on a handshake — put them in writing.
- Do not go into joint-ventures or partnerships without careful consultation with your retained advisors.
- Do not commit proceeds from the sale of one property to finance another, until they are fully realised — too many ‘sure deals’ have an uncanny habit of not coming through.
- Do not get involved in mortgages, where the payments can be widely varied by elements outside your control.
- Do not acquire properties, which have substantial negative cash flows.
And REMEMBER: It is always wise to live within your means and re-invest your profits. Because … it is better to be inconspicuously wealthy, than to be ostentatiously poor.
Here’s Your Check List So Far
- Be creative and flexible in your property dealings.
- Make a plan based on your Net Worth — and stick to it.
- Look for properties with income and growth.
- Master the DOs and DON’Ts of real estate.
By the way, you may care to listen to a regular Podcast … which is tightly edited, and made available to clients on a complimentary basis.
What you covered in the previous RULES …