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If you have read my eBook, you already know that, when it comes to real estate, the world can be filled with uneducated naysayers. There are so many people out there that “tried their hand” and failed, and they don’t want you to make them look bad by succeeding.
The truth is if you know how to avoid the potholes, investing in real estate can be very the most straightforward, reliable, and passive way to invest. Avoid the three common pitfalls below and you will be well on your way to creating a reliable portfolio.
1) Investing Where You Live Because It’s “What You Know”
The Problem:
Novice real estate investors generally make this mistake. They feel that it is safer to start investing in places they are more familiar with, rather than investing based on key cash flow metrics. Basically, they base a financial decision on their emotional reaction.
The Reality:
Investing in real estate is a business. Think of it as a business and base your decisions on long-term trends, data, and logic, not emotion.
The Solution:
You should ONLY invest in places where you live if:
- You can purchase property for less than 100 times the monthly rental price
- In the 2008 real estate crash, the market you live in experienced less than 8% price fluctuation in asking rents
- You live in a major metropolitan area that has a population of over 500,000 people
2) Working With People Who Are Not Full –Time Real Estate Professionals
The Problem:
Many investors make the mistake of trying to save some capital by working with people who only focus on real estate “semi-professionally.”
The Reality:
You wouldn’t hire a part-time doctor. Don’t hire a part-time real estate professional.
The Solution:
This means ONLY:
- Work with in-house property management
- Work with people who own properties in the neighborhoods where you invest and are active in the market
- Hire experienced professionals as rehabbers and not “handymen” that will do a semi-professional job
3) Billing Too Many Attorney Hours
The Problem:
When you invest in real estate, you need various real estate legal documents. Many people, who don’t know any better, get attorneys to draft them real estate documents from scratch.
The Reality:
It might seem nice to have documents that are created just for you, but the reality is, you could easily use templates of existing documents from other seasoned investors. The templates we use at Cash Flow Connections have withstood the test of time and are used by some of the most cutting edge real estate investors in the industry. Don’t forget, the more hours your attorney bills you for, the lower your profits will be.
The Solution:
The best way of managing this is to:
- Work with a team that closes multiple deals a month – if there is a loophole in their documents, they are more likely to find it!
- Use existing templates of real estate documents instead of paying exorbitant fees
- Once everything has been completed, ask your attorney to do a final review of all your documents to ensure that you’re properly protected
- Always do a quick check of the following sections in closing documents:
- Clear Title
- Financing Clauses
- Closing Contingencies
- Fixtures and Appliances
- Closing Dates
- Home Inspections
- Express Mentions of the Individual Paying the Closing Costs
This process will allow you to reap the benefits of legal advice from an attorney who is familiar with your personal situation. It will also reduce the number of hours for which your attorney bills you.
When you invest with Cash Flow Connections, we do all the legwork for you.
We have developed a proven system to:
- Utilize our market analysis tools to pinpoint the nation’s most reliable and profitable cash flow markets
- Constantly cultivate relationships with real estate professionals who are experts in all aspects of real estate transactions
- Provide time-tested legal templates that provide maximum security, even BEFORE you visit your lawyer for drafting these legal documents