Problems with Real Estate Investing That You Should Avoid

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

Problem #1:

The DIY rehab trap

Most investors believe that the path to real estate investment success is to purchase properties, repair them, and then flip them at a higher price. Even though this is one of many existing game plans, very few understand that this does not require doing the rehab work yourself.

A secret to success in real estate is leverage. Until you leverage your time by hiring contractors for the renovation or rehab work you'll be greatly confined in your real estate investing potential. Doing renovations on your own is a good way to keep your real estate investing business small.

Problem #2:

The home owner trap

For anyone that accumulates a few homes, there is a point at which they tend to fall in the "landlord trap." This is when the investor is so overloaded managing and working on what he has already got, that he doesn't have the time to find any more properties.

A solution for this is to hire the property management, and while that may be the best solution for some people you've got to calculate the substantial additional expenses that come with it. Other creative solutions exist for the smaller investor, that include negotiation techniques that see the renter content to take over all maintenance.

Problem #3:

Paying a lot for a down payment

Often the biggest difficulty to people starting on the property ladder, either as a home buyer or investor, is the down payment. 20-30% down is very common, and aside from the problem for a lot of people in raising the money, it also means that the return from your investment is significantly less. If you are able to get into a deal that has 5% or less as a down payment, the ROI will soar through the ceiling (so long as it is still a profitable deal).

Problem #4:

High risk

Even without considering your ROI (which is something you shouldn't ever do in practice), putting more of your own funding in a single project makes it a riskier venture. An essential principle of stock investments is deciding your position sizes, and the principle also applies in real estate investment planning. The greater the investment in a single transaction, the more exposed you are. If you have nothing down in a venture then surely you can recognize that your risk is significantly reduced.

Problem #5:

Negative money flow

Many people view compounded appreciation as the actual fortune builder when it comes to real estate investment planning. The problem is to have that improvement or growth, a lot of investors fund it on a continuing basis by way of negative money flow. Usually, as you invest in more expensive properties, the rental returns simply do not keep up with the home payments which means it's extremely difficult to earn good cash flow. And for people that try to lower their down payment as we mentioned above, the dilemma grows by having bigger loan payments.

In the past, if you wanted to enjoy the large payoff in the end the only option was to pay the negative money flow, however it doesn't have to be that way. There are a few inventive real estate investment methods that let you enjoy the privileges of inflation and also stay cash flow positive.