3 Mistakes People Make when Buying Real Estate Investments


Hey everybody Jim Pelerin here author of seven steps to real estate riches bringing you the truth about Real estate business and life. That’s right So tonight I want to talk a bit about what I consider the three misconceptions about buying real estate or the three mistakes people make when they buy real estate and this is specifically for Rentals again. So the first thing is price. I hear it all the time People say they you know, they got a dicker they want to get the best price they get D They want to get the best deal So they’re always trying to negotiate for the best price to try obviously if they do that they can They don’t have to carry as much so it’s easier to finance There’s all kinds of considerations around price To meet price doesn’t really matter what you want to be looking for when you’re doing an evaluation to be able to purchase the property is The Clapp the cash flow do the numbers make sense Now what that means is you want to look at the all the expenses. So you want to look at the mortgages So if there’s multiple mortgages you want to look at? the cost of insurance taxes maintenance and property management Right all the things that you have to all those costs that are associated with owning the property And then you want to look at rentals, okay So, I mean you could that the rental income. I mean, so how much rents are you getting for the property? I mean you may look at a property. Let’s say I don’t know Let’s say it’s a property worth about or the cost of listing is four hundred thousand Okay And then let’s say you have a similar property in a different neighborhood that’s going for three hundred fifty thousand and you look at it And maybe they’re both for plexes and they both have similar Structures and the difference is the location therein. First of all, and I mean I’m sure you heard of this saying real estate is location location location And that’s and that’s definitely a factor. So in the one that’s worth four hundred thousand Maybe the rents are more expensive right And obviously the sorry maybe the rents are higher and obviously there’s more Costs and more expenses associated with that because it is a higher priced property. So there for the mortgage on that property would be more expensive But then maybe it’s a newer property too. Right and and that could be why it’s more expensive. Where’s the 350,000 one you might think you’re getting a deal because it’s The same, you know, it’s a four-plex and the rents the rents might even be close. But if the expenses are higher Then it’s going to your net cash flow is going to be less So the thing to look about to look for when you’re when you’re evaluating the property is don’t look at price Look at cash flow look and when I say cash flow, I’m also talking about long term expenses right again. So if that $400,000 Property was let’s say ten years old and that three hundred fifty thousand one was fifty years old So there’s there’s gonna be a lot more costs associated with that three hundred fifty thousand dollar property over the long run So don’t just look at price. Okay, so that’s number one. Number two is interest rates So again people think well, you know for me to be able to buy a property, I want the best rate I hear it all the time You know, I can get them a mortgage for let’s say three four, let’s say I can get to the mortgage for four percent Oh, no. No, that’s too expensive. I saw this guy over here You can get it for me for three point nine seven. Sure you can shop those things around you can get your point zero three percent gain, but what’s important is when you’re trying to get Financing is you want to go to somebody you trust you want to go to somebody that knows what they’re doing? Okay, also The cost of money is not as important as the availability of money and so what that means is you may think that You’re in The interest rate, excuse me. The interest rate on that loan is so high because it’s 4% and you were really looking at 2.5% But guess what? You can’t get the 2.5% So you take the 3% I mean I’m I have one property where I have interest rates at 11% on a first mortgage and the thing cash flows like crazy But it was a deal the owner took back a hundred percent loan to value so I was really happy and I’m happy to pay him to sign her percent because I make about four hundred dollars a door on that property It’s it’s a duplex so again the second prop the second point to look at when you’re evaluating a Property is don’t get hung up on the interest rates of the loans that you’re looking at. Okay, the third thing is Looking for at your tenants. So obviously you’ve bought the property now now you’re looking at a tenant so a lot of people get worried a lot of people get scared that they’re going to be running into vacancies, so They start interviewing tenants and they get you know, they get worried that you know now they’re one month or two months Maybe they’re carrying the property for two months. And so they start Easing up on their requirements. Let’s say on on Qualifying a tenant worst thing you can do I’ve had properties where it’s taking me, two, three four, five six months to get rid of a tenant a Empty unit. It’s a much better than a unit with a bad tip. Okay, that’s a very important statement Don’t get hung up on well, I got negative cash flow. I have negative cash flow in this unit I really have to put somebody in there and you end up putting somebody that just ends up being a big headache and Yes on the surface It may look good because now all of a sudden your property’s cash flowing because you have that tenant But if they’re in there Destroying the place and then let’s say they’re in there for two or three months and all of a sudden they stop paying So do your due diligence on the tenant make sure that you’ve got a good tenant in there that’s going to be paying That’s that you know That’s got a good credit history or good at least rental history and there are boards where you can go to figure that out there’s some places where they can you can track that and then that person that you put in the unit is going to continue to be a good tenant and So do your evaluation? Properly so that you don’t Give up Your your unit to a bad tenant and end up costing you a lot more a lot more money in the long run So those are just three quick ideas on What you should be looking for or three things that you need to consider that? When buying rental real estate, okay. Thanks very much and good night

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