9 Investment Analysis Pitfalls

9 Pitfalls about Property Investment Deals


Mistake #1 : Trusting Others Totally

Its Not A Good Idea to let other people talk you out of a deal. Do your Research. Find out what was the median price that was sold earlier on, pertaining to your area of interest. Find out what was the last done price? Assess the economic conditions locally and worldwide to see if the local economy is slowing down or picking up. Ask and assess.

Commonly, people love to say, “I think the market is slowing down” or “I saw on the news, real estate is no good.” Please.... don't follow the crowd. Assess, Assess, assess.


Mistake #2 : Trusting the Price the Sellers Set

Most Sellers are inherently biased. Of course they are! They will always sell on the high side. For buyers, its the reverse: you would want to buy on the low side. Always be prepared to negotiate, if the price is not agreeable.

But before that: Check your newspapers First. The advertisement columns will give clues of whether the price trending is up or down. But please take note.. even this is an estimation.. it does not mean that the figures listed by the papers are definite.. that figure only reflects the price the Seller is Willing to part with his property. Always go into the battle-field with all the figures in your head. Remember: there would only be a sale if the market allows. If you find the price too high, reject it. The converse is not true.. however.

Mistake #3 : Trusting the Appraisal

Remember: An appraisal really isn’t meaningful, unless YOU hired the appraiser, and YOU gave the instructions, and YOU are handing the appraiser the check. Appraisers base many numbers off the comps and comps can be read many different ways. Appraisers get the numbers from the agents, so make sure you know where the appraiser is getting their information from. Take any “appraisal” the seller hands you in the spirit that it was intended–as a MARKETING piece!

Mistake #4: Over-estimating Market Rent

Mistake: Trusting the seller when he says that the property will generate income. Especially projected numbers on a vacant property. For example, seller might say “It is vacant now but you can rent it for $1,200 a month…easily” Ask for Proof : Last Rental Statement. Do a Research on the history of local market rents. Some areas have strict guidelines on when and how much you can raise rents. In San Francisco it is not uncommon to find very cheap apartments, even lower then normal single family residences, only to find out the tenants are paying $300 a month and there is no way to raise the rents or evict them…Even if you (the owner) wants to move in.

Mistake #5

They overestimate “as is” value. So many investors forget that to turn a house in 60 days or less requires the price to be REAL–not pie in the sky. Be conservative in your estimate of value going into the deal. Some of the best deals are where you can profit nicely and pass some saving onto the buyers. This equals a fast sale and money for your next property.

Mistake #6 : Under-estimating the time for flipping, selling..

They underestimate the time it will take to flip, fix, fill, or sell. Some investors are caught out cold without doing their sums properly. Flipping a property for gains take time and experience to learn. Please Be careful here.

Mistake #7 : Not trusting your Network.

You don’t trust your network, or never start a network. You need a network of builders, lawyers, contractors, agents, etc… This is a hard crucial step. You must trust them, and not be afraid to let them know about your deals. They might be able to help or also know of a deal. If you keep all your information to yourself, you will most likely loose deals and loose money because you cannot do everything yourself.

Mistake #8

If you have no idea and no plan, then you will just get confused with all the potential deals around you. The saddest thing about this: Too much Analysis becomes Paralysis!

Mistake #9

Always work from written contracts. Never verbal. Verbal agreements are great to base a written contract on, but will not stand up in court if the deal falls through or the work did not get done.

This is re-written from the Source: http://blog.hotvictory.com/ (Mindy's blog)

Some, however, were lifted from my own experience as a property investor. Hope they are useful.