How To Avoid Rookie Real Estate Investing Mistakes
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Minneapolis, MN (PRWEB) February 11, 2007 -- When Robert Kiyosaki, author of the Rich Dad book series, bought his first property he was, of course, ecstatic. Finally, he had done it. He had taken that first important step in truly building his wealth that the man he called his "rich dad" so often touted--investing. He knew it was very important to become an investor and make his money work for him.
The trouble was, the property he purchased was a losing deal for him. He didn't see this at first, thanks to a smooth-talking real estate agent. But when he took the contract to his rich dad, he learned what a mistake he had made. According to that deal, he would be losing money each month. He thought it would be all right because he had been told that lost money was an investment in the future appreciation of the property.
He also was not aware that there would soon be major construction near the site, which would hamper access for quite some time. Who would want to live there?
What saved Kiyosaki on that deal was having a mentor like his rich dad, who made him go back and renegotiate the deal. The more experienced investor told him that you should never settle for losing money early in the deal, in the hopes that you will make up for it later. That is a bad deal.
Rich dad made him go renegotiate the contract and instead of losing money each month, he would be gaining $80 per month. His rich dad asked him how many of those losing deals he could afford at that rate. You can do the math. He couldn't even afford the one. But at a gain of $80 per month, Kiyosaki's reply to that question was, as many as he could get his hands on.
But many newbie investors fail to put themselves in the hands of a mentor, which is a mistake. It is good to have a trusted friend--not an advisor who stands to make a buck off of the investor, but someone who truly wishes to educate - and keep them from making dire mistakes.
Another mistake that rookies often make is the very one that Kiyosaki made--they allow themselves to be talked into deals in which they lose money, after getting bogged down in mathematical "if's" that look really good on paper. "If the property appreciates at this rate, then the investor can make up all the money lost in the previous year... That is, IF the unit stays rented. IF the tenants pay on time. IF the investor doesn't discover a significant flaw with the property. IF the tenants don't cause a significant flaw with the property..."
The list goes on.
It's bad enough if the investor is making money on the deal and something like that happens. If they start out losing money, they are almost guaranteeing a failure. Yet a smooth-talking professional can make it sound as though they are doing the buyer a favor by taking their money.
And finally, newbies often fail to consider the environment within which they are making their purchase, just as Kiyosaki did. With real estate, unlike with other investments, the local financial ecosystem can seriously affect the investor's investment - and so investors are advised to stay on top of what is happening in the neighborhood and the rest of the city.
The important thing for real estate investors is to be educated and keep cool at the negotiating table. Buyers who do these two things will be more likely to succeed in acquiring cash flowing investment properties.
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