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Troubles with Real Estate Investing You Should Avoid

The 5 leading problems with investing in real estate that most people think of, are the following:

Problem #1:

Paying a lot for a down payment

Often the largest hurdle to people starting up the property ladder, whether as an investor or home buyer, is getting the money for a down payment. 20-30% down is not uncommon, and other than the challenge for many people in raising this extra cash, it also means the return on your investment will be drastically less. If you are able to get into a deal with 5% or lower for a down payment, the ROI will shoot through the ceiling (just as long as it's still a lucrative deal).

Problem #2:

Negative cash flow

A lot of investors see compounding appreciation as the real fortune builder when it comes to real estate investment analysis. The problem is that in order to have that appreciation, many investors fund it on a continuing basis with payments. Typically, when you purchase more extravagant properties, the rent just doesn't keep up with the property costs which makes it VERY hard to get positive cash flows. And for those who try to lower the down payment as we mentioned earlier, the dilemma grows because of the bigger loan repayments.

Previously, to enjoy the large payoff over time the only option was to pay the negative monthly money flow, but it is not that way any more. There are a few clever investing methods that will let you enjoy the benefits of inflation and also remain cash flow positive.

Problem #3:

The Do it Yourself repair trap

Most beginner investors think that the way to real estate investment success is to purchase houses, repair them, then sell them for a profit. Although that is one of many viable game plans, very few realize that doesn't require doing the rehab work on your own.

The secret to real estate success is leverage. Until you leverage your time by employing contractors for the rehab or improvement work you will be greatly limited in your real estate investing potential. Doing repairs yourself is a good way to keep your real estate investing business small.

Problem #4:

High risk

Even if you do not consider the return on investment (which is something you should never actually do), putting more of your own cash in a single endeavor means it is a more risky plan. A crucial principle for investing in stocks is determining your position sizes, and the same concept is used in investing in real estate. The bigger the investment in one trade, the more vulnerable you are. If you've got no money down in a deal then surely you can recognize that your risk is considerably reduced.

Problem #5:

The home owner trap

For every person that accumulates a lot of properties, there is a point when he tends to fall in the "landlord trap." This is when the investor is so overloaded keeping up and managing what he already has, that he does not have the time to go and purchase any more properties.

A solution for this is to outsource the property management, and although that may be the right answer in some cases you should factor in the substantial increased price that comes with it. Other clever solutions can be used by the beginner, which incorporate negotiation techniques that see the renter happy to take over the repair and maintenance.