Investments mistakes to avoid

BY: JAY BRIJPAUL

In real estate investment, the 95:5 rule applies where five percent of investors excel. Let’s take a closer look at some of the mistakes to avoid when investing in real estate. Fear is false evidence appearing real. The more you harbor it, the greater it becomes. The law of attraction takes over and you only attract the negative. Guard your thoughts like your wealth and move towards your fear. Once you are face to face with your fear, watch it disappear.

I’ve come across people who analyze everything, and by the time they are finished with their analysis, someone else has snapped up the investment. As the saying goes, if you are sure-footed in the world of real estate, then you will never leave the shore.

A negative cash flow can drain you. A positive cash flow is essential to wealth building. The word currency comes from current which means flow. If you have many small positive cash flows, your passive income stream will become a torrent. However, if you buy properties with negative cash flow, then, soon you will become frustrated; your income stream will be all dried up and you will become a distress seller.

Treating your investment as a business is essential. Set up a separate account and do not use the funds for anything else. It is a good idea to have between three to six months of mortgage payments as a reserve. Maintain the property and you will attract good tenants. A run-down property will attract the wrong tenant. Invest in small rental properties in the early stages where it is easier to generate a positive cash flow.

Don’t be in a great hurry to build your portfolio. Ultimate patience brings immediate results. Impatience and emotions should be out of the equation. Good deals are wrapped up in problems. For example, if the home is tenanted and the owner wants to get out, you can buy at a discounted price. Renovating a home will increase its value and a newly renovated property will attract good, high paying tenants.

Recession-proof your investments. You can do this by having fixed long-term mortgages and always cater for an emergency. In a recession, the rental market is better so just don’t worry. Every year increase the rent according to the rental guidelines. Take advantage of that because if you don’t, then later, you will have a string of underperforming assets. When one of your rental properties become vacant, modernize it and increase the rent.

Many investors feel that once they can get the money from the lender that is good enough. However, you must look behind the curtain. Avoid second, third and blanket mortgages. A second and third mortgage means higher interest rate payments and a blanket mortgage means that the lender ties up your other investments to secure his loan. Each property should have its own first mortgage from a reputable lender.

Let the bank be your police in real estate. I had invested in a motel and the bank refused to finance it because of the low income declared. My partner and I decided to pay cash. Later, when we tried to sell, the buyer had a difficult time arranging a mortgage as well. We took a loss to get rid of that property. Had we listened to the banks in the first place, we could have avoided that purchase.

Partnership is an important ingredient to wealth building in real estate. With the right partner, you can pool your financial resources and brain power. However, the partnership can also be a leaky ship and will eventually sink. I can still remember when my partner and I went to close on a deal and the lawyer’s question to us was “How is your relationship with your spouse?” Although you may have the right partner, if the relationship with the better half is stormy, then, the ship will sink.

Real estate value doubles every ten years and one property buys another in seven years. Just four residential properties at retirement, earning two thousand dollars each per month creates an income stream of $96,000 every year, your best retirement saving plan.