Three REI Scenarios to Avoid

There are of course many scenarios that you as a part-time REI don't want to find yourself in. Trying to sell a house with an incessant barking dog, a sump pump has failed you name it, we have seen it. But there are situations that you can keep yourself out of. Let’s take a look at our top 3 scenarios to avoid at all cost when investing in real estate.

You don’t understand the comps in the area

Don’t be that guy. Be able to compare apples to apples by researching your farm area and learn what a house with your amenities goes for in the area. Never invest in a property without understanding the comparables yourself. Unless you yourself are a Realtor, the real estate agent you hire is of course going to present to you comps that put a smile on your face. Do your home work though and analyze the numbers on not only what they selling price should be but also any rentals in the neighborhood as well.

You fall for the get-rich-quick scheme

If it looks like a duck, and sounds like a duck, it is probably a duck. Just like if a deal sounds too good to be true, it probably is. There are so many Ponzi-type schemes out there it is sometimes hard to tell what is really a deal of a lifetime. The get-rich over night schemes are a dime a dozen. Again, educate yourself on what is out there. Investment groups offering ridiculously high returns on your investment? REI guru that will tell you all his secrets for half your savings? Keep walking.

You are confused on cash flow and what “could be”

Make sure you understand what the current property cash flow is and what it could be after the rehab. Never invest based on speculation. Just because the seller is asking more for it because a mall is going up across the street is not a sure investment. Ever see a project start and get delayed or never finish? The value of the home could take a nose dive and the loan amount not be recouped by the now lowest reasonable rent amount you can ask. Make sure that the Wholesalers and realtors you are talking to are not touting rental properties based on current cash flow without accounting for future rehab. Ask yourself what the cost of gaining the attention of a new renter or buyer.

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Erik Hitzelberger has been Real Estate Investor since 2007. While learning the ropes in the market down-cycle, he now teaches others how to use his systems and leverage other people’s expertise to achieve their own goals.