Yesterday, we began to tackle the best ways to lose your pants (and your money) in real estate.  To recap, if you’re trying to lose it all, you should:

• Buy Into A Bubble
• Ignore Your Common Sense
• Partner With Your Buddy

Today, let’s look at 5 more great ways to lose your pants, as well as your shirt and cash.

1.  Get Caught on the Wrong Side of a Flip.

Let’s face it – most people decide to flip properties for profit, not just for a hobby or something to do.  In this case, the seller wants to be the party in the transaction that comes out ahead financially.  Amazingly, many flippers don’t grasp this logic.

Flipping isn’t always as easy as it looks.  Expenses often end up way over budget.  Contractors bail on you.  The project takes way longer than the length of time financing is available and affordable.

And the biggest sin of flipping?  Getting all caught up in trying to complete the project as if it were your own personal dream home.  The concept of a flip is to update and redecorate the features that sell as fast as possible.  Avoid becoming emotionally attached.

2.  Don’t Use a Business Plan.

Who needs a plan when you can wing it?  If you’re investing in real estate, surely you have goals.  Do you plan to flip?  Buy and hold?  Rent and build equity?

Decide how many properties you’re willing to manage.  Have a big picture perspective on where you’d like to be 10 or 20 years out with your real estate investments.  Treat it as a business and build a step-by-step plan.  Stick to your business plan like glue and success might just creep up on you!

3.  Buy the Wrong House.

You don’t want to be stuck with the one house in a neighborhood that nobody wants.  Definitely avoid buying the nicest or most expensive house in a neighborhood.  No one will buy it from you at the price you think is worthy.

Also steer clear of the dog on the block unless you can affordably improve it to be the same quality as its peers and still make a profit by doing so.  Look out for troublesome neighbors and an area’s future potential.  Do your diligence and don’t rush into a problematic purchase.

4.  Skip Over the Inspection.

Inspectors just overcharge anyway, right?  Ummm… No.  A good inspector is probably worth his or her weight in gold (unless they’re really heavy, then maybe just silver).  Seriously, unless you are a bona fide expert on all aspects of real property, the inspector will probably find scores of issues that you didn’t even think of.

Don’t be discouraged.  You just want to be as educated as possible to know exactly how much money you’ll have to invest in the long run.  Be skeptical of the unscrupulous real estate agent if they insist that everything with a property is perfect.  If they say that, the chances are fantastic that they’re either feeding you a line or don’t know the whole story themselves.

5.  Maximize Your Leverage.

I know using leverage can be a great tool.  But no matter what other advice you receive, don’t over-leverage.  Leave yourself a little leeway for your own peace of mind.

After all, when you get extreme, extreme things tend to happen.  You might lose a long term tenant.  Property taxes might skyrocket.  Financial hardship might happen when you least expect it.  Count on it and plan for it.  Keep space to breathe.

Tags:bad real estate investments