While there's plentiful information on what to do in real estate. Today,we will be sharing what mistakes to avoid, to be the most successful that you can be in your real estate investing for this year.
The number one mistake to avoid is: Not knowing your goals. What are your goals? Why are you doing all this work? Why are you spending time on this? If it's hearsay from a friend or family member, probably not good enough. Most importantly, you need to research the strategies you're looking for. The top three strategies are: cashflow, wealth, AKA appreciation or a longer buy and hold strategy, and tax advantages. Again, there's infinite strategies and reasons to buy properties out there, however these are the top three. At Saint, we start everything with cash flow. For us, we have many investors that require an ongoing return. So while appreciation is great, we don't believe that it's something that can be relied on, on its own. That’s where I recommend you start to make sure that you nail down the understanding of how to keep that at the highest level possible.
Next is not knowing the basics. You need to understand the lingo. You have to know how to talk to brokers, landlords and sellers. You have to know how to get through to them. You have to know the basics like lease terms and whatever industry or whatever market you're looking in, right? If you're industrial or you're single family, residential, those are gonna be very different as far as their lease terms and custom. Next, you need to be familiar with the basic financial situations, the basic types of leases. What goes into those? You have to know the structures of different deals from the seller. Is this a multi-partner situation? Is this a situation where kids have inherited this property and now you have to deal with 15 different people to sign off on documents for a sale? And most importantly, where the opportunities and where the pitfalls might be.
The next mistake to avoid is lack of knowledge in a market. You have to know a market in order to successfully invest. Not just your market, but what competing markets are similar. Are you a central business district investor or do you like tertiary markets cause you might get a little bit higher returns there? What are the pitfalls and advantages of each central business? This is just off the cuff central business. You're probably going to have a lot easier time leasing, stability overall, and a lot higher quality property management opportunities. The more tertiary you go, the tougher it is to find leasing, but you can push returns a little bit higher. So, those are things to consider. But knowing your market is key.
Another major mistake that we see all the time is jumping in head first without the experience. So, the research is great. The understanding of the market is great. Having a drill down on financials and being able to chop through those is extremely important. But at the end of the day, experience trump's all, you know why? It’s because you know things before they happen. You know how something feels, you know, how something looks and if you're playing it by the book and doing your due diligence, the way you need to, then you're going to see situations come up consistently. So, for instance, after a while of looking at financials, you kind of know what utilities should be at. You know, what kind of, what percentage they should be at for different types of properties. After years of going through thousands pages of rent rolls and different financials, I can tell you very quickly if the utilities are on par for the property or if the property's being mismanaged by ownership or property management.
“Oh, I saw the property. It looks like it's in good condition”. Or people assuming that they know things because they read about it in an investment book. You play by the book and you do the basics because the basics protect you this is where systems come into play. If you're purchasing a property, do the full inspection. Don't try to save money on inspection costs. Overpay, pay more for the full, full, full, full inspection. The more information you have, the more confident you can be about your purchase.
The last and final mistake that we want you to avoid for a successful year of investing are: Not having contingency plans. This is incredibly important, right? So if you think in terms of the exit of the property, which is probably the most common contingency plan needed, you must know why that's step one. But also what happens if that doesn't happen? What happens if there's a new development with a competing property that completely throws off leasing in your market, obviously you need tenants for your building to be successful, right? So if that's the case and leasing is thrown off, you have to understand what your options are at that point that might include extending the holding period. There’s going to be some tough conversations with your investors and your returns for yourself might be completely thrown off. You must know what your plan is in that case. You must know that if you have a value add play, what is going to be your marketing strategy to build the value add? How are you going to force appreciation on that? How much are you going to keep in capital reserves to make sure that you have that cushion as well. These are all things to take into consideration, but your contingency plan is what it is. It's your fallback plan. It's your plan that says, look, if our first choice for success isn't there. Then we guarantee we're going to find the next best ahead of time, rather than going into it with a one option plan, you must know what you would do and how you would do it. If the first choice doesn't pan out.
I hope this list helps you guys. It's gonna be a big year. We're extremely excited. And after many years of experience, this is the top list of mistakes to avoid when investing in real estate.