Common Pitfalls of Real Estate

Several years back, television infomercials touting the merits of financial freedom through real estate investment were all the rage. These days, "flipping" shows featuring couples, relatives, or other combinations of contractors, designers, and real estate agents are wildly popular. However, making a career from real estate is not nearly so easy or entertaining as these programs would have you believe. In fact, there are several potential pitfalls that can derail your ambitions of real estate investing. Here are some things to consider.

Analyze Potential Deals

Unless you have unlimited funds to burn on real estate investment (and even if you do), it is imperative to perform due diligence before purchasing a property. Depending on your reasoning behind the purchase, you will want to investigate whether the property has a reasonable chance of producing a profit at resale or generating long-term rental income. Crunch the numbers, and if the potential return on investment (ROI) on a given real estate parcel doesn't pass muster, move on to the next property.

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Avoid Emotional Investment

Investing in real estate is not the same as purchasing a home. Repeat this phrase out loud until it sinks in. Focus on what buyers or tenants want rather than what you like. Don't break the bank installing high end features, such as granite countertops and stainless steel appliances, unless you are investing in a high-end market with buyers or tenants who will expect (and be willing to pay for) such costly features.

Buy Local If Possible, Bundle If Necessary

Once you've established a real estate empire, with extensive staff in place to run your properties, by all means make investments anywhere and everywhere that worthwhile and potentially profitable properties become available. Until then, stick to local properties in one or two markets. You'll save endless time and money in registering limited liability companies (LLCs), filing state income tax returns, and other tasks. You'll also have a better shot at being able to evaluate whether a given property has good bones, or is located in a "hot" location, if you're investing in properties in an area where you have familiarity.

Hire a Property Manager

Are you prepared to act as a full-time landlord or landlady? Do you really relish the responsibility of fixing leaky pipes and evicting tenants for nonpayment of rent? Even if you think you are up to the task, do yourself a favor and delegate the responsibility. In almost every instance, you are better served to hire a full-time property manager, or several, depending on how many properties you own, while devoting your efforts to managing your property manager(s).

If you're ready to speak to an attorney about real estate investments, give us a call!

Sincerely,

Dave Giddens

Giddens & Gatton Law, P.C.

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