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Top Ten Myths Preventing People from Investing In Real Estate

By

By Lloyd Segal,
President of LAC-REIA

Myth 1: No Cash

The Myth: “You need money to invest in real estate.”
The Truth: Find a good real estate deal, and the money will find you. Ask any experienced investor and they will tell you that a lack of funds is never an issue; lack of good deals is! If you can negotiate a good price on a house, you will find plenty of partners or lenders willing to put up the money.

Myth 2: No Time

The Myth: “I’ve got a job, a spouse, kids, and little spare time to invest.”
The Truth: Turn off your television and you’ll have all the time you need! People spend an average three hours per day in front of the tube. They spend even more time on weekends. Want to do something fun this Saturday? Load the kids in the mini-van and drive around looking for ugly houses. Make a game out of it giving a dollar to each of your kids that spots an ugly house. Tell them that each ugly house you buy means enough money to take them all to Disneyland.

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Myth 3: Everyone Says This Stuff Doesn’t Work

The Myth: “Those late night infomercials and reality shows don’t work”
The Truth: You can convince yourself that anything won’t work. Henry Ford once said, “Whether you think you can or think you can’t, you are always right.” If you listen to the critics, the naysayers, and other pessimists, you’ll convince yourself it doesn’t work. Most people that criticize money-making ideas need to do so for their own ego. After all, if it were true, what’s their excuse for not being successful? Make a point of not taking financial advice from anyone who makes less than you do.

Myth 4: Too Much Competition

The Myth: “There’s too many people trying to buy houses to find a deal.”
The Truth: There are more than enough deals to make everyone successful. At any given time there are hundreds of distressed properties for sale in your market for each investor looking for them. Besides, a majority of people who say they are investors are just sitting on the sidelines waiting for something to fall in their lap. Don’t be one of them – go out and make deals happen! You will be successful if you spend your time finding deals and not worrying about other people.

Myth 5: It Doesn’t Work in My Market

The Myth: “It doesn’t work in my city.”
The Truth: It works in EVERY market. True, it may work differently in some markets than others, but there are investors making money in every city, every day of the week. You have to learn your market – the rents, the trends, the local customs, the lenders, the title companies, etc. Then, learn the techniques and adapt them to your market. If you are in a hot market, you can buy and sell properties faster and ride inflation. If you are in a down market, you can find lots of bargains. Regardless, in every market, there are people with financial problems that are forced to sell their homes.

Myth 6: The Recession is Coming

The Myth: “Although the market is good right now, I hear that we are heading for another recession.”
The Truth: There are always naysayers predicting market crashes. You need to ignore these pundits. Besides, there are always deals regardless which way the market is heading. If the market changes, change your strategy. For example, if the market falls, sell cheaper or with attractive terms. When Dell wants to move more computers, they drop the price. When GM wants to move cars, they offer no-interest financing. Be creative and do things that make your houses sell or rent faster. If prices are falling, buy way below market and sell just below market. If rental vacancies go up, offer free cable or WiFi. After all, when everyone else is “dooming and glooming,” it only clears out the competition.

Myth 7: Realtors Won’t Cooperate With Me

The Myth: “Real estate agents don’t cooperate with investors.”
The Truth: The right agent can be your best friend and #1 source of business. I have one agent that brought me six deals in the past year. She knows exactly what I want and only calls me when there’s a deal. You need to educate a few agents and let them know exactly what you want. Few agents have repeat customers. In contrast, you have to make them understand that you will be giving them business over and over again.

Myth 8: I Have Bad Credit

The Myth: “I need good credit to buy houses.”
The Truth: Good credit helps, but you don’t need it to make money in real estate. Lease/options, owner-financing, flipping properties, assignments, and other creative techniques will allow you to buy real estate without credit. Besides, you can always use a partner who has good credit. You can also borrow “hard money” without having good credit. In the interim, you can work on fixing your bad credit so you can use it as an asset in the future.

Myth 9: I Might Lose Money

The Myth: “Real estate is risky. I could lose everything.”
The Truth: Real estate is one of the safest investments you can make! The stock market is beyond your control. Savings, CDs, money market funds won’t earn you enough money to make it worthwhile. You have to be willing to take a calculated risk to make money. The more you educate yourself, the less risky real estate becomes. However, don’t think you need to know everything before taking action.

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Myth 10: I Don’t Know What To Do First

The Myth: “I need to learn more before I start.”
The Truth: If you’re reading this, you probably know more than enough to get started in real estate. After all, you’ll never learn everything. Knowledge is an ongoing learning process, not a result. Read books, attend seminars, and take action. Then, learn some more and take a lot more action. If you are really impatient, enlist the help of others.

Henry Ford said, “Why should I clutter my mind with general information when I have men around me who can supply any knowledge I need?” Henry Ford was a smart man because he realized that he didn’t need to know it all if he could consult with others that did. And this was before Google!

Now go out there and start submitting offers. Remember, you won’t catch any fish if you don’t put your hook in the water.

Lloyd Segal

After practicing law for over 30 years (specializing in real estate litigation), Lloyd Segal assumed the leadership of the Los Angeles County Real Estate Investors Association in 2017 from the late Phyllis Rockower. Lloyd is an author, real estate investor, mentor, public speaker, and landlord. He is the also the author of four real estate reference books, including “Stop Foreclosure in California” (Nolo Press), “Stop Foreclosure Now” (American Management Association), “Foreclosure Investing” (Regency Books), and “Flipping Houses” (Regency Books). The Los Angeles County Real Estate Investors Association is the oldest (1996) and largest investor group in California. In his role as President, Lloyd is busy expanding LAC-REIA’s events and programs for members and real estate investors. For more information, visit www.LARealEstateInvestors.com

Wealth Creation in a Hyperinflationary America

By

By Rick Tobin

Are we currently experiencing the best economic boom ever with all-time record high stock and real estate prices? Or are more investors moving their weakening dollars into hard assets like real estate, partly as a hedge against skyrocketing inflation trends? Can Quantitative Easing ever end, or have the Federal Reserve and US Treasury created a seemingly infinite hyperinflationary spiral?

Home values have never been higher in many U.S. regions than what we’ve all seen here in 2024. The Dow Jones index also recently reached an all-time peak high of 40,000 and the NASDAQ surpassed 17,000 for the first time ever.

American mortgage holders may now have access to a staggering $11 trillion in tappable equity that’s over and above their existing mortgage balances, according to the May 2024 Mortgage Monitor report from the Intercontinental Exchange (ICE).

The amount of residential property equity is so massive that if all 48 million homeowners spent $10 million of their tappable equity each day, it would take more than 3,000 years to exhaust it, as per ICE. This amount of residential equity available is more money than the Gross Domestic Product (GDP) of Japan, India, and the United Kingdom combined.

The West Coast Gold Rush

The same ICE report identified just five housing markets on the West Coast that represented a quarter of that $11 trillion equity number: Los Angeles, San Francisco, San Jose, San Diego, and Seattle. Four of these five core equity cities are located in the Golden State of California.

As per a study released by Zillow, approximately 20% of our nation’s total housing value is in California. With an estimated 40 million residents in California and upwards of 333 Americans across the nation, the state residents represent close to 12% of all Americans. Yet, our state home values represent a much higher 20% number as compared with the rest of America.

Homeowners usually need income first to qualify for a third-party mortgage to purchase their home. While the cost of living for West Coast residents is typically near the highest in the nation, the salaries paid out by many employers, or the income generated by self-employed workers, is also among the highest in the nation with San Francisco, San Jose, and Seattle ranking first, second, and third nationally for the top average salary, according to CareerBuilder.

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The Top 5 Most Unaffordable Housing Regions

Three of the Top 5 most unaffordable housing regions in America are located in Southern California – #1 Los Angeles, #3 Irvine, and #5 Long Beach. Miami was #2 and New York City was #4, as per the RealtyHop Housing Affordability Index for May 2024.

Average families who earned the median income in Los Angeles must now spend a shockingly high percentage of 99.33% of their income on home ownership costs, as discovered in this RealtyHop survey. If true, the average Los Angeles resident would have just 0.67% (or less than 1%) of household income left over to purchase groceries and pay for utilities, automobiles, clothing, home maintenance, and other basic necessities if they were actually able to qualify for a home mortgage with those very high debt-to-income ratios.

Rounding out the Top 20 for the most unaffordable housing cities in America, which included many more California regions, were as follows:

6. Newark, NJ
7. Anaheim, CA
8. San Diego, CA
9. San Jose, CA
10. Boston, MA
11. San Francisco, CA
12. Santa Ana, CA
13. Oakland, CA
14. Chula Vista, CA
15. Fremont, CA
16. Jersey City, NJ
17. Austin, TX
18. Dallas, TX
19. Riverside, CA
20. Seattle, WA

These Top 5 most unaffordable housing regions in the survey compared the median home listing price primarily with the median income for the same region. Let’s take a look below at how high the percentage of household income was needed to cover the project monthly household expenses (mortgage, property taxes, insurance, etc.):

The Top 5 Most Affordable Housing Regions

Now, let’s review the Top 5 most affordable cities in America, which have much lower percentage of income to monthly household payment numbers:

Out of the 100 major cities analyzed by RealtyHop, a whopping 88 of the cities had homebuyers paying more than 30% of their monthly income towards household expenses.

The RealtyHop report findings were based on factors such as the percentage of income required to afford a home, a 30-year fixed mortgage rate of 7.125% (subject to change), and projected household income based on US Census and BEA data.

While there are many cities and towns across the nation with much higher median home values than the Top 5 most unaffordable housing regions listed by Realtyhop, those areas usually had much higher household income averages that helped make the home purchases more affordable.

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Income Requirements for Homes by State

Families who live in the five most expensive U.S. states for home purchases require an annual income exceeding $270,000 to live comfortably, according to a report published by Visual Capitalist.

“Comfortable” is defined as the income required to cover a 50/30/20 budget, with 50% set aside for necessities like housing and utilities, 30% for discretionary spending, and 20% allocated for savings or investments, as per the same Visual Capitalist report.

The Top 10 most expensive states for two working adults who are raising two children is listed as follows:

Because home values are so much higher today, the average mortgage balance debt is dramatically rising for many borrowers. One-to-four residential mortgage debt has also reached all-time record highs just north of $20 trillion dollars, as per the St. Louis Fed’s Economic Data.

Investments and Wealth Creation

“If you don’t find a way to make money while you sleep, you will work until you die.” – Warren Buffett

If you’re fortunate to own assets, your net worth is probably rapidly increasing. If not, the declining purchasing power of the dollar is making it very challenging for tens of millions of Americans to pay their bills on time.

There’s another old saying that is somewhat similar to Mr. Buffett’s quote that’s as follows: “Either you work hard for your money or your money works hard for you.”

Our towns, cities, states, and our nation are spending money like never before in U.S. history. The federal government continues to increase our debt at a pace of close to $1 trillion dollars every 90 days.

Between January 2020 and October 2021, the M1 money supply (cash or cash-like instruments) grew from $4 trillion to $20 trillion as I’ve written before. The more money that is created and the larger our federal debt grows and compounds, the weaker the purchasing power of the dollar.

For those people who don’t own any real estate or stocks, they are not experiencing firsthand the record wealth being created for many Americans.

Inflation is more likely than not to grow at a faster pace in the near future than what we’ve seen over the past 50 years or so. If so, real estate has proven to be an exceptional hedge against inflation as properties tend to appreciate on a historical average at least as high as the published annual inflation rates.

If you’re lucky enough to own one or more properties today, then you might consider pulling some equity out of the home to acquire more income-producing assets. For first-time homebuyers, today may be the best time to start looking for properties.

A home near you that you consider to be “too expensive” might seem very reasonable five years from now as inflation keeps rising and our dollar gets weaker and weaker.

Rick Tobin

Rick Tobin has worked in the real estate, financial, investment, and writing fields for the past 30+ years. He’s held eight (8) different real estate, securities, and mortgage brokerage licenses to date and is a graduate of the University of Southern California. He provides creative residential and commercial mortgage solutions for clients across the nation. He’s also written college textbooks and real estate licensing courses in most states for the two largest real estate publishers in the nation; the oldest real estate school in California; and the first online real estate school in California. Please visit his website at Realloans.com for financing options and his new investment group at So-Cal Real Estate Investors for more details. 

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Private Money, Hard Money

By

By Dan Harkey
Educator & Private Money Finance Consultant
949 533 8315 [email protected]
Visit my website at danharkey.com

Introduction:

“Private money, hard money, and bridge loans” are used interchangeably:

These loans refer to alternative lending sources separate and distinct from banks and institutional lending. One or more private investors/lenders fund each loan. Pools of investment capital accumulated with many private parties are also frequently used to finance private money loans. A sponsor/manager will be formed for pooled entities to fund many loans and manage the servicing.

Private money lending stands out when traditional banks decline, or the loan transaction is non-bankable. It’s a solution for property-related issues that need to be resolved, such as completing a partially constructed building or increasing occupancy in an income property with excess vacancy.

Transactions where private money loans benefit borrowers.

*Fast loan approval with possible 2-to-4-day funding for bank declines and fallouts: The bank may already have done significant underwriting, including opening escrow and title, obtaining an independent appraisal, and completing the application and financials. Some private lenders can use the banks’ information to fund faster, particularly when they have a mortgage pool or immediate capital available to invest.

*Debt consolidations for consumers, businesses, or a combination of both: In most cases, a funded loan is used for debt consolidation, lowering the borrower’s monthly payment obligations. The funded loan should give the borrower some breathing room to improve their credit and obtain a long-term bank loan. Also, if the loan is a second lien, the average interest rate between the first and second is calculated to show a ”net-effective rate.”

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*Marginal to poor creditworthiness, where a borrower is not bankable, and approval of a loan request is primarily property equity-driven.

*Special purpose-unique properties– Churches, synagogues, restaurants, bars, automotive repair shops, body repair shops, gas stations, and other single-purpose or limited properties.

*Limited document loans where the requirement is a loan application, credit report, and three to six months of bank statements. The objective is to prove the ability to pay the outstanding loan payments and other debt obligations.

*Fresh start loan. Borrowers may need to catch up and give themselves breathing room for accrued and differing payments.

*Payoff loans coming due or past due: Refinance and pay off existing first, second, and third lien position loans that may be due. Sometimes, refinancing the second and providing cash out is the appropriate answer to the loan request. Loans are available for both owner and non-owner-occupied residential and commercial properties.

*Cash-out for any reason refinances based upon the protective equity of existing real estate. Proceeds may be for business and consumer purposes. The Federal Government and some states, such as California, require a special license to engage in consumer-purpose lending.

*Junior lien or second-position loans on both owner and non-owner-occupied dwellings for business purposes.

*Construction completion, rebuilding, or upgrading properties in poor or marginal condition: The loan is usually necessary because the collateral property or the borrower needs to meet bank underwriting guidelines in its distressed or partially completed state. Loan approval by the lender will consider the as-is-value and the as-completed-value.

*A borrower may own and operate a cash-based small business with limited financial strength, as the books show. A lender will require 3 to 6 months of personal and business bank statements. The borrower must still prove that they can make the required payments.

*Leveraged existing real estate equity developed over time to borrow additional funds, purchase other investment properties or invest in a business enterprise.

*Purchase a property with some cash down payment, sweat equity, and seller’s agreement to carry back a subordinated junior lien. The property seller would have the borrower sign a promissory note and a deed of trust with a set interest rate, payment schedule, and due date. The subordinated second is recorded concurrently with the first trust deed but with a recording number after the first.

*Inherited property where family members and successor trustees who are beneficiaries need funds for distribution to the beneficiaries, pay the estate’s legal costs or fix up the property for a future rental. Another option is fixing it and selling it on the open market.

*Loan on unimproved raw land. Loaning on raw land can be a complex process. Is the land parcel part of an existing subdivision, referred to as an infill lot, a commercially or industrially zoned parcel within a subdivision, or a larger parcel held for future development? The borrower may need to use the property as collateral to raise funds for future entitlements, including engineering, architecture, various reports, and fees to develop a fully entitled parcel ready to be built. The borrower would pay the loan off as part of the construction loan.

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*Retail strip and community centers, industrial or other properties that require upgrades or repositioning: Many centers are distressed due to the COVID shutdown vacancies, where tenants could not pay rent.

*Fix-and-flip loans allow high-frequency purchasers to purchase a distressed property, rehabilitate it with the expectation of resale, and turn a quick profit. Borrowers need both experience and some of their capital at risk.

*Litigation settlements: A loan to buy out a business partner, pay off a pesky family member, an ex-spouse, a judgment lien, or a partition suit.

*Pay off civil judgments and liens, including arrearage in property taxes, association dues, and federal and state tax liens.

*Sale of existing promissory notes and deeds of trust to 3rd party investors: The sale is usually at a discount, whether the promissory note is performing or non-preforming. A deal will free up cash.

*Hypothecation or pledge of a promissory note and deed of trust: A borrower who owns a promissory note and deed will assign them to a third-party investor as collateral for a new loan.

*Cross-collateralization of more than one property: Multiple properties are required to meet the lender’s equity requirements. The borrower would sign one promissory note but have recorded liens that encumber two or more properties.

*Small mobile homes or trailer parks: properties that don’t meet the underwriting standards of institutional lenders.

*Vacation, Short-term, and rental income properties; Financials and history are necessary to prove the ability to make payments.

*New ground-up construction or construction completion for a partially completed project: Most requests result from borrowers needing to fund additional dollars to complete the project when they deplete their capital or existing construction loan proceeds.

*Collateral combines real and personal property, such as a motel, restaurant, carwash, or gas station with mini markets. A recorded trust deed encumbers the real property, and a UUC-1 financing statement will be filed with the Secretary of State to encumber the personal property. The valuation and decision to make the loan must be on the real property only.

*A long-term lease on commercial property has or is expected to expire soon. The lease expiration could cause a vacancy and a disruption in rental income. If the master tenant vacates the property, this will disrupt other smaller in-line tenants because the master tenant is responsible for the primary draw of foot traffic to the center. Banks will usually not make this loan. This loan is generally a bridge loan until the owner obtains a long-term lease with a credit-worthy tenant and manages the center back into stabilization.

*Credit approval is subject to highly sophisticated lease analyses, with multiple tenants having different lease terms, including length, lease rate, and lease provisions. Some tenants are on long-term leases, and some are on a month-to-month tenancy. Lease documents may include go-dark requirements for the anchor tenant or provide for lease cancellation in the event of excess vacancy or loss of an anchor tenant.

*Some properties require mutual property access easements for ingress/egress or complex usage rights, such as reciprocal parking agreements. Many properties, such as churches and retail shopping centers, sign contracts with multiple property owners to use the entry/exit of the property or the parking in specific ways or at certain times.

*Foreign nationals with and without social security. The borrower must have a U.S. bank account(s). The borrower must have a process agent service arranged during loan processing.

*“Notice of a substandard condition” or “notice of property noncompliance” is recorded on public records by a building department notifying the public that the property is out of conformance or in disrepair for building and zoning codes. The bridge loan funded by private lenders will provide funds to make substantial improvements and modifications to bring the property up to acceptable building, safety, and zoning standards. Institutional lenders will not make these loans.

*Non-conforming property does not comply with current zoning and building standards. As a result, strict limitations exist on repairing or replacing structures in destructive acts such as fire, flood, windstorm, vandalism, or earthquake. The property may not be able to be rebuilt to an acceptable level after the destructive event occurs.

*Earthquake seismic retrofit. Many older properties require upgrades, such as engineered reinforced steel frames bolted into the existing structure and walls shored up with steel support fasteners to withstand earthquakes.

*Tenant improvements. Commercial building owners must provide funds to install interior or exterior improvements to satisfy the owners’ and prospective tenants’ leasehold improvements.

*Cannabis-related properties, manufacturing, and retail facilities: Some states have legalized lending in cannabis-related operations, and others have not.

In summary, private money loans are collateral-driven, even though the lender must review the borrower’s financials to prove that the borrower can pay the debts.

If you find value in this article, please forward it to friends and associates. You may use this article in your marketing efforts.

Thank you

Dan Harkey

Dan Harkey

Dan Harkey is a contributing author to Weekly Real Estate News and is a Business & Financial Consultant. He can be contacted at 949-533-8315 or [email protected].

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

New Office Building in Cherry Creek Breaks Ground

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“Hospitality-infused” office building at 2nd & Adams in Cherry Creek predicted to be 70 percent leased at the start of construction

Cherry Creek North, CO (May 2024) – Magnetic Capital is proud to announce the groundbreaking ceremony (please see invitation in email for details) for Cherry Creek’s newest office building, located at 2nd & Adams. The 100,000 square foot, “hospitality-infused” building is expected to be 70 percent leased at the start of construction, including a 30,000 square foot lease to Bow River Capital.

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“We’re very excited to announce the start of construction for 2nd & Adams, and provide our tenants with an office building that is designed and configured with the ultimate in hospitality in mind,” said Chris Carroll of Magnetic Capital. “Cherry Creek represents a ‘flight to quality’ among businesses that want a safe, friendly and first-class location where their employees can live, work and play. While downtown Denver continues to struggle with office vacancies, Cherry Creek has experienced 65 percent rent growth since Covid and a steady influx of new office and retail tenants, as well as residents filling existing and new multifamily communities.”

Bow River Capital, a Denver-based private alternative asset manager, will locate the company’s new headquarters at 2nd & Adams and become the building’s anchor tenant.

“We’re thrilled to be moving Bow River’s headquarters to 2nd & Adams and to be the first of many companies that will enjoy the building’s forward-thinking design,” said Bow River Capital Chief Operating Officer Jane Ingalls. “We were drawn to the focus on hospitality and elevated common areas that 2nd & Adams will provide to our team and guests.”

Construction of the mixed-use office development is scheduled for completion in the third quarter of 2025. The project will include approximately 80,000 square feet of office space and 20,000 square feet of retail. The development team is focused on what it calls a “hospitality-infused office operating model” with a heavy emphasis on food and beverage and the broader activation of common areas. The project will have multiple food and beverage and retail concepts across the ground floor and the rooftop will feature a 5,600 square foot bar and restaurant, anchored by best-in-class national operators.

OZ Architecture is the architect for the project and Mortenson Construction is the general contractor. OZ Architecture recently released an article on the project here. Blake Holcomb at CBRE is handling office leasing and can be reached here.

More information about 2nd & Adams is available at https://secondandadams.cbre-properties.com/

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Cherry Creek North Dynamics: Cherry Creek North’s unique concentration of high-end retail, executive housing, luxury multifamily, and premium hotels, all within a 16-block radius, positions it among the top office markets in the US today. With a vacancy rate of sub-2% and physical occupancy at ~95%, Cherry Creek contains fundamentals comparable to Sand Hill Road, Beverly Hills, and Century City. More information regarding Cherry Creek North is available at www.cherrycreeknorth.com.

About Magnetic Capital
Magnetic Capital, led by Dan Huml and Chris Carroll, is a privately held real estate investment and development company focused on developing and operating real estate assets often overlooked or undervalued by traditional investment firms. Headquartered in Denver, Colorado, Magnetic Capital is focused on development and multifamily acquisitions opportunities along the Front Range.

For more information on Magnetic Capital, please visit https://magneticcap.com/.

About Bow River Capital
Bow River Capital is a private alternative asset manager based in Denver, Colorado, focused on investing in the lower and middle market in four asset classes: private credit, private equity, real estate, and software growth equity. Through its subsidiary Bow River Advisers, LLC, Bow River Capital also offers a registered, closed-end mutual fund – Bow River Capital Evergreen Fund (EVERX) – designed to provide institutional-quality private market access to a broader set of investors. Collectively, the Bow River Capital team has deployed capital into diverse industries, asset classes and across the capital structure.

Bow River Capital Evergreen Fund is distributed by Foreside Financial Services, LLC, which is not affiliated with Bow River Capital or its affiliates.

For more information on Bow River Capital, please visit www.BowRiverCapital.com.

Media Contact: Paul Suter, Suter Media Relations

720-771-9093 or [email protected]

Unlocking Wealth: 5 Real Estate Mistakes to Avoid for Smart, Passive Income

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By Hugh Zaretsky

Real estate investing is an extremely powerful tool for building short-term and generational wealth. This includes offering a route to financial freedom while delivering passive income. However, navigating this path successfully requires awareness of common pitfalls that can thwart even the most well-intentioned investors. With a diverse portfolio that spans from $40,000 single-family homes to million-dollar properties, I’ve gleaned valuable insights on effective strategies and mistakes to avoid. Here’s a detailed look at the smart ways to invest in real estate and the top five mistakes people often make, enriched with real-life stories from my experience and some pro tips.

1. Failing to Do Thorough Market Research

What to Do: Conduct comprehensive market research before investing in areas, especially in locations that you do not know well. Have you seen the Homes.com commercials? They joke about going undercover and doing the research for you. However, this is what you need to do especially for out-of-the-area markets. You need to understand local economic drivers, population growth trends, employment rates, and housing demand.

Is there a new casino going into the area or is a factory closing? Both can have a significant impact on the local economy and the housing market.

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Use resources like:

Local Government Websites: Access economic development reports and city planning documents. It is mainly free and open to the public. You just need to know where to look.

Real Estate Portals: Sites like Zillow, Homes.com, Redfin,PropertyShark and Realtor.com offer market trends and property value data.

Market Analysis Reports: Industry reports from companies like JLL, CBRE, or local real estate associations provide in-depth market insights.

**Mistake to Avoid:** Investors often buy properties that are cheaper but in areas with declining populations or economic instability, leading to poor returns and high vacancy rates.

Story: Early in my career, we bought a portfolio of “cheaper properties” compared to where I live in a small midwest town with the expectation of significant growth happening in the area. However, the city delayed the major growth project in the area. While other areas of the country grew 10 to 50% before or during COVID this area stayed flat. This taught me the importance of thorough market research.

2. Overleveraging and Poor Financial Planning

What to Do: Maintain a conservative debt-to-equity ratio and have substantial cash reserves. This includes:

Budgeting for Contingencies or Whoops factor: Set aside funds for unexpected repairs or vacancies.

Creating a Financial Plan: Include investment goals, cash flow projections, and exit strategies. Make sure to find out the cost of a refresh in your area.

Mistake: Overleveraging can lead to financial ruin if the market shifts or unexpected expenses arise, leaving you unable to service debt or cover costs.

Story: The real estate market will not go up forever. I learned this lesson the hard way during the 2008-2010 housing market crash. Instead of taking profits along the way by selling off some of our properties. We were caught in the downturn. We lost a few properties and had to sell others at a loss. This experience underscored the necessity of maintaining a healthy balance between debt and equity.

Pro Tip: I typically have my client’s people set aside or keep a reserve of 1% of the purchase price or 10% of the rehab budget whichever is higher when fixing a property. You should also have 3 exit strategies and not just one for each of your properties.

3. Ignoring Property Management:

What to Do: Either manage properties efficiently yourself or hire a reputable property management company. Key responsibilities include:

– Tenant Screening: Conduct thorough background and credit checks.
– Rent Collection: Implement a reliable system for on-time payments.
– Maintenance: Regular inspections and prompt repairs to maintain property value.

Mistake: Poor management leads to high tenant turnover, property degradation, and loss of rental income.

Story: I have lots of my clients and students who have had bad experiences because of not doing proper screening on their tenants. The least of your concern is the tenant not paying rent for 6 to 9 months. One couple that I coach wanted to be nice to their tenant and listen to a local attorney who said, “The tenant would leave after a few notices.” It had already been several months of late rent and not paying in full when they engaged the attorney. Well six months later, they finally listened to me and got the eviction process started. The tenant fought it but did move out when the sheriff finally showed up to evict them. Sometimes we have to make a hard choice.

Pro Tip: Don’t be cheap and make sure to do background checks on your tenants.

4. Skimping on Due Diligence

What to Do: Perform your due diligence before purchasing and use professionals even if not required in your state. This includes:

– Property Inspections: Hire professional inspectors to check for structural issues, pest infestations, and compliance with safety regulations.

– Hire Attorney to Perform Legal Checks: Ensure there are no liens, easements, or zoning problems.

– Surveying: Verify property boundaries and land use restrictions.

Mistake: Failing to uncover these issues can result in costly legal battles, unexpected repair expenses, or inability to use the property as intended.

Story: This is one of the biggest things that my clients and students want to push back on in states where attorneys are not required to purchase a property. Do not be CHEAP as there are lots of horry stories. I would much rather pay an attorney $750 to $1,500 to do a closing than find an issue later the cost $20,000 to $100,000+ to fix or even worse an EPA issue. I was just talking with someone buying their own home that had asbestos only in their floor. Anything EPA related will most likely cost 25%+ more than you expected and take longer 30 to 90 days longer to fix than you planned. So, be prepared. The government does not move fast.

5. Underestimating Costs

What to Do: Accurately estimate all costs involved. This encompasses:

– Closing Costs:** Fees for legal services, title insurance, and loan origination.

– Renovation and Repairs:** Obtain detailed estimates from contractors.

– Ongoing Expenses:** Property taxes, insurance, utilities, and maintenance.

Mistake: Many first-time home buyers and investors focus solely on the purchase price, underestimating the total investment required, leading to cash flow issues. Most people are shocked by all of the closing costs on their first deal.

Story: On my first home, I did not review the HUD (Now, closing statement) before my closing but that is the time to see all of the expected costs on the closing of your home or property. I ended up paying an extremely high fee to my mortgage guy. My attorney caught it at the closing but it was too late to change it for the purchase.

Pro Tip: Make sure to review all of your fees on the documents you sign before closing. Make sure to have your professionals outline their fees upfront.

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**Conclusion**

Real estate investing is a powerful tool for building wealth and achieving financial independence, but it requires careful planning and informed decision-making. By avoiding these common mistakes and following strategic investment practices, you can enhance your chances of success and meet your financial objectives. For more insights, Pro Tips, and detailed guidance, visit [www.hughzaresky.com](http://www.hughzaresky.com), where I share my experiences and tips from decades of real estate investing.

Happy investing!

Hugh Zaretsky

Hugh Zaretsky, was an IT executive until his wake-up call came on 9/11. Realizing how short life can be, Hugh transitioned his career to become a real estate investor, international speaker, best-selling author, philanthropist, and advocate for empowering individuals. Hugh started investing in the precursor to Short-Term Rentals back in 2005. His expertise in cash-flowing properties (STR, SFH, and multi-family) has allowed him to successfully train over 12,500 real estate investors and entrepreneurs to complete profitable real estate transactions, launch businesses, or take them to the next level.

Hugh has been a certified real estate continuing education instructor in 4 different states. His latest book “The Launch Button” was an Amazon best seller in 4 categories including all of real estate. He recently spoke at the Humanity Summit in Portugal on the global issue of “Sustainable tourism (including STRs) and how to work with local communities”. His dedication to mentoring and coaching aspiring entrepreneurs makes Hugh a highly sought-after coach, trainer and speaker. Get ready to be inspired and gain invaluable insights from Hugh’s wealth of experience. To learn more about Hugh go to www.HughZaretsky.com

IG – @hughzwealth
FB – @hughzWealth – My personal page is full so use this link

www.thelaunchbutton.net or buy direct on Amazon. – My book “The Launch Button” is an amazon best seller helping people find their passion or take their business to the next level.

www.eframily.com – Want to work, train or get coached by Hugh?
www.hughzaretsky.com – To learn more

“You have to change your mindset before you can change the size of your wallet.” – Hugh Z

You’re invited to National Private Lender Expo® Commercial Real Estate Conference

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You’re invited to National Private Lender Expo®
Commercial Real Estate Conference
Thursday May 30, 2024
Antuns, Queens Village New York
3:00pm to 8:00pm

Queens New York May 30, 2024 register/view details

Miami Florida November 21, 2024 register/view details

Carson California March 27, 2025 register/view details

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View Agenda Thursday May 30, 2024

View video clips of the past National Private Lender Expo®

Schedule a call for sponsor, on-stage speaking engagements, PowerPoint presentations

It’s truly an honor to have these distinguished, illustrios indiividuals provide powerful presentations live on-stage at the National Private Lender Expo commercial real estate conference in the heart of the five boroughs of New York. If you’re involved in the private lending industry, you’ll make priceless connections in a royal atmosphere at this annual flagship event attended by private lending professionals, accredited investors, major commercial real estate players from across the continent.

Follow our company page to keep apprised of the latest news in the private lending industry.

This flagship event is organized by Peretz Toiv – CEO HardMoney.com
Follow Mr. Toiv on LinkedIn

Antuns is located directly across the street from the LIRR Queens Village Station and near Mass Transit. Three free parking lots for your convenience.
Bring lots of business cards:)