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10 Mistakes to Avoid on Your First Real Estate Investment

Mistake #1: Bad Financing

Bad financing can be one of the most lethal mistakes possible. I have personally seen more real estate investors lose money or go out of business from bad financing than from any other mistake.

What is bad financing? For me, it includes a combination of the following:

  1. High interest rate
  2. Adjustable interest rate
  3. High monthly payment
  4. Balloon payment
  5. Personal recourse

Most residential bank mortgages at least save you from the first four mistakes because the interest rates are low, fixed for 30 years, with amortizing payments, and there are no balloons. But they almost always require personal recourse, meaning you personally guarantee the loan with your other assets and future earnings. This is probably a reasonable trade-off.

Many commercial, portfolio, hard money, and private lenders, however, do not meet any of these criteria. And that could be a problem, especially on your first deal.

If you borrow at 12 percent interest with a large monthly payment, a balloon due in one to three years, and full personal recourse for the loan, you are likely taking too much risk.

Why? Because the property will likely have negative cash flow with the high interest rate. A balloon note means you will have to refinance or sell in a very short period of time. As many learned in the 2008 credit crisis, trying to refinance when credit dries up is very difficult even with perfect credit and good income. And personal recourse means that if anything goes bad and your lender loses money, they could chase you around and take your other assets in order to collect.

I have always used a lot of private and seller financing for my real estate deals, and I keep this list of financing mistakes in mind. For example, I might trade off a little higher interest rate and a larger down payment in exchange for a longer loan term and no personal recourse.

Mistake #2: Bad Location

Real estate value always begins with location. The people and businesses who will rent or buy from you begin with location, and then they evaluate other criteria like the lot and the house.

Because it’s so important, you should study the best and the worst locations in your area before buying. There are investors who make money in bad locations, but it’s a challenging game that beginners should probably avoid.

I bought a lower-priced single family house once at a below market price with excellent seller financing terms. But the location was awful. I could not consistently attract good tenants because the neighbors were not pleasant (or safe) to live around.

On the other hand, I have bought properties in good locations that I made mistakes on, like paying a little too high of a price. The good location helped to bail me out of some of those mistakes.

Mistake #3: Misjudging Resale or Rent Value

I would argue that our number one job as investors is to understand how our end customers (renters and buyers) make buying decisions and then to translate that to a value. If we can’t determine the full value potential, we will have a hard time making a confident purchase offer that earns us a profit.

This job is important. But it’s not easy. It’s a skill that you must commit to learn and then continue to refine every day for the rest of your investment career.

On your first deal, it’s likely you are not yet an expert on value, so there are a few things you can do to help yourself:

  • Reduce your target market to a relatively small, manageable area.
  • Study all of the transactions in your market daily using tools. For me, this is like the daily weight training of real estate that keeps me fit and competitive.
  • Hire professionals for assistance. For resale value find a very competent real estate agent and/or appraiser. For rental values find property managers with multiple units in your area.
  • Take courses on valuation at your local Associate of Realtors or other continuing education school.

Mistake #4: Underestimating Repair Costs

It is inevitable that you will underestimate repair costs at some point. But you want to avoid enormous cost overruns that could cause you to run out of cash or face other problems.

To avoid large mistakes, learn a good repair estimating system.

Also be sure to get help from other more knowledgeable investors or contractors. Don’t be afraid to pay these people for their time and knowledge.

You can meet these people by:

  • Attending local meetups
  • Attending local real estate club meetings
  • Driving neighborhoods looking for remodel projects
  • Asking on the  Forums

Mistake #5: Running Out of Cash

Your investment properties are like your race car. Cash is like your car’s fuel. When out of fuel, even the most powerful race car in the world sits still. If you run out of cash, even the best investment property will hurt your wealth building.

So you want to avoid running low or running out of cash.

This usually happens for a couple of reasons:

  1. Underestimating repair costs (see mistake #3 above)
  2. Underestimating future capital expenses on a rental property

Capital expenses are big ticket items like a roof or a heating-air system replacement. If these costs hit you unexpectedly, it can become a big problem.

 Mistake #6: Letting Emotions Drive Your Decisions

This is a huge mistake for newbies. And it’s understandable. I mean it IS an exciting chase to look for your first deal.

But you have to balance your enthusiasm with cold, hard, and objective analysis.

I love enthusiasm. It’s critical as an entrepreneur because it helps you push ahead through the many obstacles you will face.

But I have also learned to never make big financial decisions with emotion alone. I use a process of analysis that filters each of my deals. I also run every deal by someone else, which typically means my business partner but sometimes includes other mentors and advisers.

My process begins with basic criteria, including general locations, neighborhoods, housing types, construction quality, etc. This helps me to filter down the enormous number of properties out there.

Then I use a deal analysis process to analyze the numbers. Here is my basic go or no-go system for a deal.

 Mistake #7: Choosing the Wrong Real Estate Strategy

Real estate investing has MANY strategies. And it’s easy to get overwhelmed or waste time chasing the wrong strategy.

Here’s a tip: You won’t find a perfect strategy. But you can find one that pretty well suits your unique strengths, your short-term needs, and your long-term goals.

So, instead of borrowing the perfect strategy for someone else, think hard about what you really want and which real estate strategy will get you there.

Mistake #8: Choosing Bad Contractors

Finding contractors who will do good work, finish up on time, clean-up after themselves, and charge reasonable prices is harder than finding buried treasure on a beach. Yet the people who do work on your fix-flip or rental deal will make or break its success.

Mistake #9: Not Using Your Due Diligence Period

Some experienced investors make offers with fast closings, in as-is condition, and with no due diligence period. This may help them get a lower price, but for your first deal this is probably not the best route to go.

Instead, include a short but reasonable due diligence period that allows you to get out of the purchase contract if you find a problem.

Here are a few of the important things I usually do during due diligence:

  • Obtain a very good professional third party property inspection
  • Repair estimates (see mistake #3 above)
  • Evaluate zoning and local ordinances (for example, the college town where I invest has a law that you can’t rent to more than two students in a residential zoning district)
  • Get a professional third party opinion of value and rental comps

Basically, you want to double check all of the key assumptions you used to make your offer. If you find that you made a bad assumption, you may need to renegotiate or walk from the deal.

Mistake #10: Not Learning From Your Mistakes

You have just read 9 mistakes to avoid, and I could probably tell you another 20. But no matter what you learn, you will still make mistakes. I guarantee it.

Conclusion

Real estate is an entrepreneurial venture. We entrepreneurs shoot for the stars, but we also take risks that could turn out badly. This can be a difficult pill to swallow on your first deal. But risk doesn’t have to be a bad word. I see it as a barrier to entry. It means that the less committed, pretender-investors don’t bother. They drop out when it gets too tough.

The successful real estate entrepreneurs aren’t perfect. They have scars to prove all of their past mistakes. But they learn to avoid the fatal mistakes that would knock them out of the game.  And they learn to always keep moving forward.

Forward movement. That’s what entrepreneurship is all about.

 

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‘A bit forgotten, in a good way’: Tweed Shire, a green pocket tourists tend to overlook

Bound by the Queensland border, the Pacific Ocean and the Border Ranges National Park, the Tweed – as it’s affectionately known by the locals – flies a little under the national radar.

“Being just south of the border, it’s a little bit forgotten, but in a good way,” says Sophie Carter, of Sophie Carter Exclusive Properties. “It’s not overdeveloped and you can live a coastal lifestyle that’s not as busy as the Gold Coast. We’ve got all the attributes of better-known areas, but without the hustle and scrutiny.”

Only five minutes from Coolanagatta Airport but not under the flight path, Tweed Heads is
the region’s urban centre and provides all the expected urban amenities. But it’s perhaps the shire’s riverfront towns like Murwillumbah that lure the most tree-changers.

Valley views

Mount Warning in the Tweed Range, Tweed Heads
Mount Warning in the Tweed Range, gathered in morning mist. Photo: Destination NSW

Owner and director of Madura Tea Estates Stephen Bright spent the first few years of his working life with a big accounting firm in Sydney before moving to the north coast in his 20s, looking for a rural lifestyle with employment opportunities.

“What was attractive at that time was that everything in the Tweed was so idyllic,” he says. “It’s a beautiful valley that’s very close to the far- north coast and beaches, with large tracts of rainforest and a very active agricultural scene in cane, bananas, dairy and logging. And within the valley there’s a significant amount of value-adding going on, like processing for milk and milling for timber.”

Stephen Bright of Madura Tea NOT FOR REUSE
Stephen Bright of Madura Tea describes Tweed Shire as idyllic. Photo: Supplied

Bright spent his first 17 years as an accountant in Murwillumbah before buying Madura Tea Estates. He has grown the hinterland business by expanding the product range and broadening the distribution through Australia’s largest supermarkets, in turn providing stable employment for the Tweed locals.

Madura now claims 4 per cent of the tea category within the grocery sector in Australia and a tour of the estate allows a close-up view of tea growing, processing and packaging.

Time for a cuppa

Generic shot of two people sharing a pot of tea
Madura Tea Estates has received approval for an on-site cafe. Photo: iStock

The estate has recently received approval to operate a cafe on site and Bright is looking forward to serving visitors with a cup of their home-grown brew in the near future.

“We’re on the tourist trail so it makes sense to serve light refreshments for visitors,” he says.

A strong cafe and dining culture is already well established in the Tweed, and Carter’s favourites include Cabarita Beach’s Paper Daisy, Cubby Bakehouse in Chinderah, Friday Hut Dining in Possum Creek and Ancora in Tweed Heads.

You’ll also find a cafe at the Tweed Regional Gallery.

Top home in the area

2402.53 Bay Street Tweed Heads
2402/53 Bay Street, Tweed Heads. Photo: Supplied

A recent renovation has furnished this penthouse with Carrara marble finishes and Miele appliances across a 563-square-metre floor plan.

The property has stunning views over the Tweed River and comes with its own rooftop pool.

Sophie Carter Exclusive Properties are selling the property with a $2.65 million guide.

This article was first published in www.domain.com.au. Here is the link to the original article: https://www.domain.com.au/news/a-bit-forgotten-in-a-good-way-tweed-shire-the-green-pocket-that-tourists-tend-to-overlook-809075/

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Bayside tenants pay Melbourne’s most expensive rent

Bayside renters can expect to dish out more than tenants across the rest of Melbourne and prices are predicted to keep increasing.

CoreLogic data shows it costs a median of $824 weekly to live in a house in the seaside suburbs, while those looking to rent a unit can expect to pay a median of $520 a week.

It’s the most expensive municipality for renters across Victoria.

The asking rent has jumped from $810 for houses and $500 for units in 2017, despite being a challenging period for Melbourne’s real estate market.

It costs $3900 a week to rent the five-bedroom house.

Bayside’s median asking rent is $824 a week for houses.

The median sale price for Bayside houses decreased by 4.1 per cent to $1.8 million during the same period.

Realestate.com.au general manager for rent Kul Singh said prices were impacted by softening sales conditions.

“Investors hold onto stock and look for rental yield growth, which impacts weekly rents, while buyers concerned with further declines also enter the rental market,” Mr Singh said.

Some of Melbourne’s most prestige rentals are found in the area.March 23: Jack Boronovskis’ Victorian property wrap

“These factors result in increased competition for rentals in popular areas, which often end in rental prices increasing.”

Investors are set to earn 2.4 per cent in rental yield a year on their Bayside house, which is below Melbourne’s average 3.1 per cent.

Greater Melbourne’s median asking price for houses is $430 a week, which is an increase from $420 in 2017.

6 White St, Beaumaris is on the rental market for $1600 a week.

The property includes a luxurious outdoor entertaining area.

It costs the same amount to rent in Tasmania, while Sydney, Canberra and Darwin are more expensive at $560, $550 and $500 respectively.

Melbourne units cost a median of $420 a week to rent, which is the third most expensive across the Australian capital cities, behind Sydney and Canberra.

Melton is the cheapest, with a $370 weekly asking price.

112 Beach Rd, Sandringham is for lease at $850 a week.

It’s priced close to the municipality’s median asking price.March 23: Jack Boronovskis’ Victorian property wrap

Mr Singh said inner-city pockets were more likely to have price jumps because of demand.

“We would expect to see the most popular rental destinations continue to become more expensive due to increased competition, particularly if supply of rental housing decreases as a result of the proposed Labor policies relating to negative gearing and investors,” he said.

This article was first published in www.realestate.com.au. Here is the link to the original article: https://www.realestate.com.au/news/bayside-tenants-pay-melbournes-most-expensive-rent/

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Healesville: The locals love living here and will tell you all about it

Warning: there’s something a little irksome about Healesville locals. They absolutely love living in Healesville, and they’re not afraid to tell you.

“It’s pretty much perfect,” says Benjamin McKenzie, who moved from Brunswick with his partner five years ago when the couple were expecting their first child.

“I really can’t think of a single negative thing to say about Healesville!” long-time local Mia McKay gushes. “I am wracking my brain.”

They’re not the only ones. Wander the main street and ask anyone you meet – you might just find yourself considering a move. And who could blame you?

Set amid the picturesque Yarra Valley, 52 kilometres north-east of Melbourne’s CBD, Healesville marries yesteryear charm with a drool-inducing spread of top-notch gourmet fare – restaurants, wineries, breweries, distilleries and cheese factories are dotted about the surrounding paddocks and hills.

Surveyed in 1864, after years as a layover point on the track to the Woods Point goldfields, the town evolved into a holiday destination for well-to-do Melburnians upon the introduction of a railway line, now resurrected as the Yarra Valley Railway tourist train between Healesville and Yarra Glen.

Cultural experiences abound, with the TarraWarra Art Gallery, Memo theatre and annual Healesville Music Festival (held each November).

There’s country horse racing, an organic market, and the spectacular Bicentennial National Trail that follows historic stock and coach routes all the way to Far North Queensland. Add the cute natives at the famed Healesville Sanctuary, and it all sounds pretty idyllic.

McKay and her partner keep horses, host local music acts on their verandah, and volunteer at the annual music festival. On a Friday night, you’ll find them at Watts River Brewery enjoying the live music and the company of other locals.

It’s a scene that McKenzie enjoys too, adding that he has struck up friendships with other new fathers, a sense of comradery forged over a drop of the house IPA.

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The kitchen and pizza oven at Giant Steps restaurant in Healesville. Photo: Arsineh Houspian

The McKenzies have never regretted their tree change. “We were getting really sick of the city. It was so busy and polluted. It just felt exhausting … We took a chance and it’s been great.”

Healesville gave them more house and garden for their money, the fresh air they were craving and land enough for a shed, a veggie garden and backyard cricket.

Their property even has a creek flowing through it – I mean, come on. The family enjoys ready access to the bush, as well as the small-town community feel. Life has slowed, in the best of ways.

Barry Plant director Jenny Webb loves Healesville too. “It’s a place that has a slower pace and a country feel, but there’s lots happening,” she says. “People know and help each other here; it’s a nice place to be.”

Healesville property prices have “increased dramatically” over the past five to 10 years, according to The Professionals’ Lyndal McMath-Hall.

And while things have cooled of late – Domain data places the town’s median house price at $610,000 – McMath-Hall notes that as prices rose in 2016-17 buyers spilled over from out-of-reach suburbs such as Lilydale, Mount Evelyn and Mooroolbark, bringing an influx of first-home buyers and young families.

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It’s famous for its eponymous sanctuary, but there’s plenty more to Healesville. Photo: Justin McManus

Property stock reflects the town’s wide appeal, with a spread that includes smaller units for around $350,000 to $450,000, new townhouses, large family homes that can fetch as much as $750,000, and sweeping million-dollar lifestyle properties.

And once people move here, Webb says, they tend to stick around, even if they need to upgrade or downsize to make it work.

With good schools, shopping and buses, and access to the CBD via trains from Lilydale, the town isn’t set up just for weekend crowds.

When pushed, McKenzie concedes if he has to find a negative, he could do without the tourists that make things “pretty hectic” on weekends. But McKay embraces the visitors – “If they’re coming to appreciate my home town, then I’m pleased about that, I take it as a compliment”.

After all, as Webb points out, without the tourist dollar there wouldn’t be so many jobs, nor the established infrastructure that the locals enjoy year-round. Perhaps not even so many world-class wines to sample without the steady stream of thirsty guests.

This article was first published in www.domain.com.au. Here is the link to the original article: https://www.domain.com.au/news/healesville-the-locals-love-living-here-and-will-tell-you-all-about-it-813171/