If you are interested in investing in real estate, you must learn about the most common mistakes which can occur, to better avoid them. Real estate can be a tricky thing-however, it doesn’t have to trip you up.
The first mistake comes by making commitments to buy, but still waiting to be paid for what you sold. When times were buoyant, it was a fairly safe bet to buy unconditionally with only a deal on paper and a deposit to rely on.
Not these days. Never sell in agreement to buy other properties, because your buyer might walk away! The deposit can be taken by an agent who arranged the deal, but it may turn out that the buyer is a company with no assets.
This mistake could lead to the threat of financial ruin. If you have a deal on your property and want to buy again, it is essential to wait until the money is in your bank – or only buy with an agreement conditional upon settlement of your property actually taking place.
The next mistake is that with the advent of private sale companies, it is becoming quite common for sellers and buyers to get together and save on agents’ fees. This practice is fraught with dangers as hard times bring out the worst in many.
For example, a buyer and a developer might get together and agree on a sale and purchase of a nice new home. The buyer might pay a large deposit directly to the developer.
When it comes to settlement, the buyer will have the rest of the purchase money arranged but the developer cannot settle because his borrowings are so great that the funds from the sale would not pay off his debt to the bank. If you want to buy privately, do not pay the seller a single cent until your solicitor has confirmed that releasing any mortgages will not be a problem.
Buying off the plans is another area where many a buyer’s spirit has been broken. The unholy mess in the shoddy apartment market is just such an example.
Thousands of wide-eyed Kiwis believed the hype of the “get-rich- quick” merchants that buying off the plans was the way to make money. Many buyers handed over deposits that disappeared into a bottomless pit.
Buying a spec property off the plans is something to be avoided. Buyers make easy targets for the con artists.
If you still feel the urge and must buy off the plans, at least ensure the deposit is held in a solicitor’s interest-bearing trust account and not released until every detail of the purchase has been ticked off and the property fully completed and certified as such. This is very important.
Next, borrowing from the one bank for all your needs carries a high risk factor. Time and again people borrow their home mortgage, credit cards, hire purchase, business overdraft, and the investment property mortgage from one source without realizing that all the loans are almost always linked.
A default on your business overdraft or credit card can mean all the loans are called up at the same time. Most bank loans have an “all obligations” clause, which in effect means that any default will allow the bank to “cherrypick” their way through your assets and sell whatever is easiest for them.
It can get even more difficult when you have several mortgages over several properties with the same bank. If you sell one property, the bank could demand that you not only repay the mortgage on that property, but any money left over has to be used to reduce other borrowings.
They are allowed to do this. To avoid this problem and keep your hard-earned money, always use different banks for different assets so each becomes a standalone investment.
When you pour money into a property in renovating, the reality is that the market will not always return you a profit – as many do-uppers have found, to their cost. Whether upgrading your home or an investment property, you must always bear in mind the current market value and where the total costs will end up.
Don’t over capitalize. If you are stuck with a property that has achieved all it can now and in the foreseeable future, then it’s time to quit it and look for greener pastures.
With this knowledge, you will better be prepared to enter this strange industry. Do your research, and good luck!
Jack R. Landry is a resident of Las Vegas and has written hundreds of articles relating to tourism and real estate. He recommends (http://www.Tradewind-lv.com) for your next home in Las Vegas.
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