The biggest mistake is to never make a decision!
George S Patton
The 5 real estate investor tips that I’m going to outline here are all about minimizing risk and keeping the alligators away. If you’ve spent any time at all on my website, you already know that generating wealth is really important to me, and so is keeping it! That’s why I emphasize a low-risk approach.
I read a story over the weekend about a real estate operator – a guy who put deals together with investors – who apparently became overextended. He placed legitimate second mortgage investments on many of his properties, but it appears he oversold the opportunities and offered returns for investments that subsequently were NOT secured by any asset.
The result was predictable: when the market shifted downward, many investors lost hundreds of thousands of dollars because their investments were not completely secured.
How does this happen? How does an investor turn over a hundred thousand dollars without getting any security in return? I mean, I understand there are times when you invest with full knowledge of risks – including lack of security, but we’re talking about real estate investment.
We’re not talking about some bizarro idea that turns chicken poop into air fuel for your car. This is real estate. One assumes that the investment is backed by, er, real estate.
The problem, of course, is that it doesn’t matter where we are or what we do, there are confidence men and women everywhere waiting to separate us from our hard-earned investment cash.
And they are particularly good at targeting new real estate investors… folks like you and me who understand that real estate has some powerful gains in the long-term, and want to add revenue-generating properties to our portfolios.
My Top 5 Real Estate Investor Tips for Newbies
To know when you should be on the lookout for the con men, I’ve compiled my top real estate investor tips to help you move from novice to street-wise investor.
1. Always ask how your investment will be secured
There is no reason at all for any real estate investment to not have some kind of security. If you don’t own the property outright, then usually it comes in the form of a second mortgage or a joint-venture partnership showing you as co-owner.
This is absolutely necessary. If a con man sells you an investment in a property and is not offering you a mortgage in second position, then be very, very careful. This is the number 1 real estate investor tip you don’t want to forget.
2. Never accept a mortgage in third position
Building on tip #1, if the real estate operator is offering you a third mortgage in exchange for your money, then politely decline. While there are complex deals put together with third mortgage holders – usually offering a higher rate of return – these are not for you if you’re just starting out.
Keep it simple: the bank will be in first position, and you want to be in second position.
3. Know the LTV
It’s important for you to understand what the overall loan-to-value (LTV) is of the investment property. If the first mortgage is for 75% of the home’s value, and your investment in second position is 20%, then the entire home has a 95% LTV meaning that 95% of its value is held by lenders (including you).
Generally, the lower the LTV, the lower the risk, and the lower the returns. As a novice investor, you won’t want to go higher than 90% LTV and in fact, you might want to forsake some higher potential returns for a lower risk LTV. Anything around 80% – 85% is considered low risk.
4. Get it in writing
The real estate operator showing you the investment opportunity should have a fully legal investment agreement, outlining exactly what the terms of the opportunity are, including the amount of the investment, the targeted return, the length of the term, how and when returns will be paid out, and how the investment will be secured.
Before signing any investor agreement, have your lawyer review it to make sure you understand what it says and to answer any of your questions. When you’re investing tens of thousands of dollars or more, spending a couple hundred to make sure the investment agreement protects you is well worth the expense.
5. You drive the bus
There’s a reason why real estate operators are chatting you up: it’s because they need investment money for their deals and you have some. Nothing wrong with that. Banks do it too.
But here’s the thing to be aware of, and it’s the same advice you probably got when you were buying a car or house: always go home and think about it first before signing anything. Give yourself at least a day or two to review the opportunity, talk it over with your family and trusted friends.
Never fall for the “limited time only” and “you must act now before they are all gone” lines. Real estate investment opportunities are like buses: if you miss one, there’s another one coming along in a few minutes.
Always remember that you are the one with the investment money. You are the one in charge. You get to decide when the time is right.
One of the biggest mistakes I see with novice real estate investors is the fear of missing out on a great deal, and as a result, they tend to part with their money too quickly and invest in opportunities that may not be the best for them. I get that, because I’ve done that too.
Take your time, and keep these real estate investor tips in mind. There have been and will continue to be great, secure investments for a long time.
For more great real estate investor tips and strategies, I have found Gary Eldred’s book The Beginner’s Guide to Real Estate Investing to be pretty good. It’s a few years old now, but the information he presents in it is still valid.
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Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial Investment Real Estate Broker in Arizona now for 20 years and I worked with banks and their commercial REO properties for 3 years. I am also a commercial landspecialist in Phoenix and a Landspecialist in Arizona.
WHETHER YOU LEASE OR OWN
NOW IS THE TIME FOR YOU TO EXPAND, UPGRADE OR INVEST.
we are at on the a rise of the cycle in Commercial Real Estate. so there is only one way and it’s called we are going up and now is the time for you to expand, upgrade or invest in Commercial Properties in Phoenix. The prices on deals I may get you will not be around forever.
If you have any questions about Commercial Investment Properties in Phoenix or Commercial Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion in Commercial Properties in Phoenix or Commercial Properties in Arizona with you.Obviously I am also in this to make money, but it could be a win-win situation for all of us.
Please reply by e-mail email@example.com or call me on my cell 520-975-5207 or Office:480-948-5554
Walter Unger CCIM
Associate Broker, West USA Commercial Real Estate Advisers
7077 E. Marilyn Road, Bldg 4, Suite 130
Scottsdale, AZ 85254
Office : 480-948-5554
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