1. Paying little attention to capital expenditures

   Real estate investors often ignore capital expenditures while assessing their cash flow and mistakenly consider such expenses to be one-time expenditures. Capital expenditures may include replacing a furnace, air conditioning compressor, refrigerator, etc. It is important for the investor to calculate each and every expense regardless of how insignificant it might be. By doing so, the investor can assess his/her actual cash flow more accurately. Deals that may have looked good on the surface might turn out less attractive after careful consideration of all short and long term expenditures.

2. Not doing enough homework

   Like other professions, real estate investors need proper education and training. Many wannabe investors bypass many important elements and have trouble down the road. If you want to become a real estate investor, you should educate yourself well before taking on your first deal.

3. Not having cash reserves

   It is quite important for an investor to have enough cash in reserve for each property. Investing in a property that eats cash rather than generating cash flow may be the greatest mistake a real estate investor can make. It would result in negative cash flow that in turn, may reduce your capability to purchase more properties. Therefore, as a real estate investor, you should find ways to generate positive cash flow so that you can cover a mortgage, pay property taxes and perform monthly maintenance. Maintaining cash reserves also helps you create long term success in your real estate investments. Lack of cash may compel you to perform substandard repairs or rent to a non-qualified tenant.

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There are a number of people in today’s market that are looking to put their money to work in more ways than one. Sure you can invest in the stock market like every other person out there or just buy an annuity that will give you a steady stream of income. Or you can invest in the real estate market that is just filled with more properties than anyone has ever seen. Because of the persistent presence of bank foreclosures, the real estate market has many amazing deals. This type of investment is not for the faint of heart, since your money may be tied up for months to years. There are a few ways you can invest in real estate that will make you money. The most recognizable way that people have made money was buying homes to flip in the short term. The other option is to hold them as rental properties for a few years while it is rented out for a steady stream of income. If you are looking into flipping homes you need to have expert knowledge of the area to make sure you are buying it at a price that will make you money. You also must consider the money needed to update the home so that it will sell quickly. As a general rule the nicer the home looks compared to others on the market the faster it will sell. However the investor must be careful not to put too much money into the home where he has no chance of recouping that upgrade. For example putting in a pool will cost more than you will get when you go to sell it. It might look great but items such as pools will not return the investment required to put it in. The goal in these types of investments is to buy and sell as many houses as you can. You need to find the right people who will help you achieve this goal such as local contractors and Realtors. They will be the key to helping you find the property, fixing it at the best price and then putting it back on the market.

The other type of real estate investing that is going on these days is to buy and hold as a rental property. There are many condos and smaller homes on the market that make great rentals. These can be so cheap that in a few years your entire investment has been paid off by your tenant. You still have to do your research and know the area before you buy. Making sure that your condo is in a safe part of town with stable employment is very important. If the tenant loses a job the faster he or she finds a new one the better off everyone is. Also knowing the area rents give you an idea of what your monthly income will be from your investment. With this monthly cash flow coming in you can even take part of it and trade the currency markets. With the help of forex trading charts you can take that monthly rent and double it. This is not to say that you might want to spend it on a vacation for you and your wife, but a forex position is a good way to hedge against your real estate holdings.

You can also buy real estate because you feel as if renting is giving your money away. This is very true. While renting you are not building wealth and only paying the owner of the property to go on vacation and play on his boat. Once you become a home owner you have that feeling of accomplishment knowing that you own a home. You don’t have to worry about a security deposit or wondering if your landlord will ask you to replace the carpets. The entire home is yours and you are free to do whatever you want to it. After all owning your own home is considered the American dream, and in today’s market you can buy that dream for a lot less than in the past.

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As a general rule our investing business focuses on buying distressed real estate properties, rehabing them and renting them to good long term tenants. Over the past year we've been able to generate on average a 20% annual return for each single family house we've purchased using this model.

From time to time we need to generate capital to finance new acquisitions. Flipping retail homes is one way to raise relatively quick capital albeit it can take up to 6 months to get cashed out. Flipping is generally frowned upon by sophisticated investors and I for one generally agree. But there are times when waiting 5 to 10 years before cashing out of a rental property is just too long to wait to unlock your equity in an investment.

We found a good deal on a 4 bedroom 2.5 bath 2800 sq ft home in a strategic area of Michigan for about $57,000. We intend on investing another $35,000 into repairs and improvements. Comparable homes in the area are selling between $130,000 to $150,000 in under 6 months. This would give a net profit of between $38,000 to $58,000 before closing costs are factored in.

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Over the past 12 months my partners and I have been buying single family home foreclosures. Homes are selling for deep discounts and providing high cash-flow rates once rented. Our strategy is not to buy and flip, but to buy, rehab then rent to provide cash-flow and capital appreciation. On the surface this may seem as easy as drinking coffee because of the high number of foreclosures available. But don't be fooled with high quantity and low prices. Buying foreclosure properties is not as easy as it may seem. Buying houses for cash has been our strategy which is one way to up your chances of success. Refer to my previous article "Buying Real Estate With All-Cash" In todays article I'll outline another strategy that when paired with all-cash works for us.

Buying homes at deep discounts for cash relieves vacancy pressure as there is no unerlying mortgage. You may still have a lean on the property held by a private lender but hopefully you have worked out the terms so that you have 60-90 days until your first interest payment. Racing out to find a tenant before your first payment is no longer a pressing issue. You can be more choosy when screening tenants. You can hold closer to your asking rent price and not decrease it just to get the property occupied. You can save money by performing more of the rehab yourself. These are just a few of the benefits.

As easy as it might seem to buy real estate at low prices, a problem has arrisen that must be addressed if we are to successfully close deals with banks. I have found, as with many of my collegues that seller real estate agents have all the control when it comes to you submitting your offer, deciphering which offers to submit, how much information they tell you ahead of time, and lets face it some blatently do nothing. As a buyer in the past I have typically used a buying real estate agent to help me track down candidate properties, perform showings and leg work. As a result I did not close many deals dispite offering near or above asking price. The reason...

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In an up and down market there are those investors that will dig up opportunities regardless of the state of the economy. In the current climate banks are holding on to their cash with a wait and see attitude. Savvy investors are finding that buying with "All-cash" works as a viable strategy for acquiring residential and commercial bank owned properties. Investors with a wait and see attitude for institutional lending and financing are missing a great opportunity to buy while everything is on sale. Rock bottom prices in the residential and commercial markets in part have been driven down by the scarce availability of credit.

A Hostile Lending Environment

Currently, savings and loan banks, an alternative to commercial lending institutions and private lenders, will typically finance up to 65-70% percent of property values. Buyers in some cases are required to bring 30-35% to the closing table to even be considered. The Commercial Mortgage-Backed Securities (CMBS) market which has traditionally produced many lenders eager to compete for loans has been stalled since the 4'th quarter of 2007. For example: In the first 3 quarters of 2008 only $12 to $13 billion worth of commercial loans were securitized. Already, 2009 is on its way to having the lowest production of securitized commercial loans in 10 years as stated by Commercial Real Estate Direct. Some banks, in order to finace a new project, are requiring developers to pre-lease roughly 70 percent of office/retail units and housing. Shorter amortization periods and higher interest rates added to the mix creates the perfect storm for an even more hostile lending environment.

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There are many risks when it comes to property investment as a business. I think sometimes people, especially investors forget the steps involved when obtaining a loan and how this process may open them up for risk. There are many concepts to understand mostly because the bottom-line is determined by capitalization (CAP) rates, return on investments (ROIs), and other net operating incomes.

It makes sense that people overlook the smallest detail when financing a property. It doesn't really matter "why" the loan is needed, if you are seeking a conventional loan from your neighborhood bank or turning to private lenders or hard money; it is still very important that you pay careful attention to the loan you are being offered. I understand you are concerned with flipping the property as quickly as possible; but in doing so you are not as attentive to the type of loan. And thus you find yourself in high-risk situation. Often times brokers may steer you into high-risk deals since they may have pegged you to be a risk-taker.

This opens you up to a different class of loan and areas of predatory lending practices which may incur high fees and other terms or conditions that are not always explained up front. Sometimes loans that allow you to flip properties are called rehab loans as they use hard money via private lenders. This not only means steeper interest rates but an area of lending that is not strictly regulated by the federal or local governments. These hard money loans only work to your benefit when they can get you out of a deal quickly. In other words, these loans only serve the lender because of the amount of leverage that increases the return.

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When it comes to investment properties there are loopholes which create many options. For instance, Section 1031 of the IRS tax code permits real estate investors to sell their investment properties and in return allow a trade for comparable or similar matched investments in order to defer the tax as the capital gains amass. It seems that real estate is truly the most popular transaction permitted by this code. Something called the Triple Net or NNN otherwise known, as Leased Real Estate is considered appropriate as alternate property during such a transaction. What this really entails is a Net lease where a tenant foots the bill for all or most of the properties' active expenses over and above the rent. It is important that before we discuss the particulars of Net lease that we have an understanding of other kinds of leases as each serves a different purpose.

First there is the bond lease that makes the tenant completely accountable for active expenses encompassing the property's operating costs, which include regular maintenance, repairs and substitute costs for replacing materials etc. Second there is the Triple Net or NNN lease, which incurs actual restrictions on capital expenses. The tenant must pay for property expenses including tax, insurance and maintenance, as under this kind of lease, these are the tenants responsibility. Third taking from the NNN lease is the Net Net or NN lease. This is somewhat the same as NNN lease but returns the responsibility of the physical up keep of the structure to the landlord. They must make sure major items such as the roof are in good working order. Lastly the Modified Net lease infurs that the tenant pays for everything including utilities, maintenance, repairs and insurance. They do not pay property taxes.

For the NNN situation first the situation may allow less property management issues to be a problem for the investor. This is especially true for investors dealing with multi-family units, complexes considered commercial because they want the profit and income without the hard work or heartache. They also want to postpone their tax accountabilities without having to play the role of landlord 100% of the time. Savvy investors use NNN leases because they insure income but still allow for ownership to stay in their name and portfolio while maintaining a good level of capital. Another aspect of the NNN is that it also makes the transfer of real estate to beneficiaries easier.

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During this time of financial uncertainty as giant powerful cornerstones of the American banking community fail, you have to wonder, is my money safe? What happens if my bank is no longer doing business? Should I take my money out? What about small, regional banks and even credit unions? Are they immune or will they suffer the same fate? Should I worry about my long-term investments? Is it finally time to get organized and figure out my finances?

For months now, the American financial backbone has been a sinking ship, headed toward a crisis beyond anyone's experience and description because not even the Great Depression can compare. Many say we have been in a recession but there have been signs of a Depression for a while. Even such financial leaders like Bear Stearns, IndyMac bank start to fail and powerhouses like Fannie Mae and Freddie Mac need federal assistance; there is something rotten here. This is not to mention the Lehman Brother's bankruptcy and the proposed bailout of $700 billion bailout, which was initiated by American Insurance Group or AIG. No wonder our heads are spinning; we don't know if we are coming or going. Everyday on the news it is something new. People are taking to Internet financial pages like MSN Money and sending emails to financial experts across the country for advice.

Oprah has Suze Orman on her show as a way to elevate the worry but still there are very few answers and still more questions. We can take a moment to answers the questions but you also must keep in mind, the answers are changing for from minute to minute.

How can I tell if my bank will fail? Well you really can't. There's no easy way to know and I'm certain the bank will try to ease your worries. You should look at indications within the market because there is no a hot list of banks going bad. The Federal Deposit Insurance Corp does not publish one. Furthermore, according to the American Bankers Association many banks rebound and recover so quickly that it's next to impossible for them to produce a list.

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 It happens all the time when you engage in acquiring a new property through contract, there is not much information about the property known at that stage.  All you may know is the details of the financial statement and rent payroll or you've visually inspected the place by driving around the block.  This is more than enough details to make a solid educated offer on the place but it does not by any mean represent the actual value.  There's a lot more information you'll need to know to determine the real value.

Really this is the job of the Due Diligence process.  What is the purpose of this process?  Due Diligence is an analysis by which your risk is assessed.  Much like discovery in a court case, you will have at least 30 days to figure out what exactly the property entails and what owning the property requires you to be responsible for.  Finally, also what kind of benefit you will receive as a result of purchasing the property.  What will be your cost benefit and profit?

There are four ways risk can ruin this success and by you knowing the potential risk involved, you can steer clear of these situations.  The following potential risks for these transactions are: Market, Financial, Tenant, and Physical. 

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Commercial real estate can lead to just about any lifestyle you can dream up, but if you're not careful how you play your cards, you can find yourself living through some expensive lessons. Fortunately, even in today's housing crunch, crossing the line from multiple homeowner to one who invests in commercial real estate isn't all that difficult, as long as you plan out a realistic strategy and game plan.

 Some people start out by buying a rental property, others rent out their own home, and move on from there. After acquiring a few homes this way, they branch out with a duplex or a small apartment. If this continues eventually the bank is going to put on the brakes by telling you that your portfolio is beyond their lending protocol for multiple residential properties.

If you've grown too big for your britches but want to continue expanding your mini-empire you'll have to learn the "how-to's" of commercial real estate. Possibly you acquired one commercial property and everything went off without a hitch. But the next one didn't. Suddenly you find you "hit the wall" - you're in property owners no man's land.

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