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Roy Dekel was in the right place at the right time. Investing in the market at a time when costs were low, Roy Dekel purchased 26 homes in several cities in Southern Texas. He rented out the properties, and waited for the market to bounce back. Today, the properties purchased are worth 2 or even 3 times the original purchase price. He did exactly what all investors preach; buy low and sell high.
But the question becomes how do you know when you are truly buying low and selling high? Markets like real estate fluctuate, and that is why there is always a risk when buying or selling a home. Below are 5 pitfalls to steer clear of when expanding, or starting a real estate investment portfolio.
You will always have less risk when you are knowledgeable about the area. Due to the age old adage of know your market, many start in their own neighborhoods, before branching out to the unknown. So, what do I mean about knowing your market? Take a small community and follow their sales, and purchases. Know what homes sold for in the height, and at the lowest point of the market. Know if this community is transient, or stable. Learn the rents in the area, and percentage of homes that are owned. All of these things give you a broad picture of the neighborhood. This picture can tell you if this home is a value to flip, or hold and rent.
You may also want to consider investing in communities that may increase in value due to outside influences. This could include large corporations moving to a particular city, new construction like shopping centers, residential or commercial buildings, remodeling or renovation of community buildings like community center’s libraries, schools, and parks, or zoning changes.
Time is money….and so is planning, scheduling, and NOT doing your homework. Buying a home to flip or hold can be a money pit, in fact real estate practically invented the term. The home can be infested with termites, sliding down a hill, have dry rot, electrical or plumbing issues, leaky roof, and so many more unknown issues. To combat this, make sure that any home purchased has a thorough inspection, and any specialist needed; i.e. structural engineer, mold specialist, ect, have inspected the home and given estimates before contingencies on the home have been removed. Their inspection fees are a small price to pay in light of dealing with a potential unknown issues and cost after the home has closed.
There are so many people that come along with running a business, and running a real estate portfolio is no different. You will need inspectors, contractors, realtors, managers, appraisers, and bankers. These are your partners for each property you acquire. Since your decisions are often based on their solid advice, it is important to find people that are not only good at their job, but who also view this relationship as a partnership in business as well. Those vendors will be the ones that go the extra mile to ensure your needs are met, and will take care to prevent unnecessary spending.
During escrow, cement your budget. Obtain contractor estimates to repair, or renovate, and secure commitment for timelines. Remember that staying on track, and within budget is key to obtaining success. Make this clear with any contractor that you hire. If you set your budget and expectations up front, you will be less likely to come up with issues in the end.
Financing can make or break a real estate transaction. 1 point difference in rates can mean the difference between profit and deficit. You need to be as knowledgeable about your loans as you are about the property and neighborhood. Is there a prepayment penalty fee? Is the rate adjustable? Did you take out a bridge loan, what is the penalty if the home is not sold in the dictated period? Have you looked in to leveraging current properties or a wraparound loan to expand your portfolio? Know your options, and have a backup plan when necessary.
Even when you do your homework, and plan to the day and penny, property is not a sure investment. With time however, and real estate transaction have the capability of building value. The best advice is to expect a certain amount of uncertainty. While unorthodox, Roy Dekel claims that, “If you believe in what you are doing, you should do it full force. Life doesn’t have contingency plans, and when it comes to business or investing, do it full out.” Roy Dekel chooses to take calculated risks that can earn big rewards. For Roy Dekel, life and investing can be an all or nothing proposition, and his advice is to trust yourself, and take the leap of faith.