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By Kimberly Shallenberger-
Cameron
There was an ABC News story that came across my desk today on Real Estate
Flipping. It was one of those, "this is where everyone is getting rich"
stories that tends to send a whole bunch of "get-rich-quick-types" rushing
out to buy investment property without so much as a clue as to how much work-
or risk- is involved. ABC might as well have said, "Dot com stocks are back;
buy Pets.com (http://Pets.com) again."
Having worked with a variety of investment properties over the past several
years, let me first say YES it is possible to make a nice living working with
investment properties. However, I`ve also met a lot of individuals who have
failed miserably at it. In fact I`ve seen so many failures; I don`t even know
where to start in discussing them...
One of the biggest mistakes I`ve seen people make is they spend time
"researching" i.e. watching videos or reading the internet, but they never
seem to seek advice from ACTUAL investors working in their local market.
Buried near the bottom of the ABC article, it mentioned you should have a
"home inspector, contractor, realtor, tax accountant and attorney to advise
you."* Although I would add lender to that list as well, the point to be made
is having a core group of experts from every aspect of the investment stage
to help you should something go wrong can mean the difference between making
a profit and losing your proverbial shirt.
From my experience, most would-be investors are afraid of looking “stupid” in
front of other investors, or are afraid they will be perceived as competition.
Trust me; successful investors do not see a first time neophyte as a threat.
Most of you will fail so there is no need for the expert to feel angst by the
presence of a novice. But believe me, it’s a whole lot less embarrassing to
ask a stupid question of an experienced expert than to lose your home because
you didn’t ask in the first place. And remember because laws and regulations
vary from state to state, and city to city, the “great advice” you get from
someone on the internet in California can land you in hot water in Missouri.
For that matter, the differences between an established inner city and a
budding subburb can be night and day.
The best advice, as well as the FIRST piece of advice I offer every “new” real
estate investor or would-be rehabber is to seek excellent tax and legal
council. When seeking advice of an accountant, research for a company or
individual with experience in real estate. When it comes to home improvements
and rehabbing, things like repairing a door verses replacing a door
depreciate very differently having varying tax consequences. A knowledgeable
tax advisor can be your greatest asset when Uncle Sam comes a callin`!
This is also true of your legal ally a.k.a. your attorney. Protect your
current assets and minimize your exposure and vulnerability to liability
should the unexpected occur- like someone becoming injured on your property,
loss due to theft and possible items not covered under your insurance policy
(that’s another story for another day- which I will post to my blog at http://
www.stlagent.com (http://www.stlagent.com)). Your attorney will guide you on
an appropriate course of action be it in creating an LLC (Limited Liability
Corporation) or other appropriate precautions to protect your best interests.
Along theses same lines, when you go to look for the rest of your core group
of “experts” as you begin your endeavor into investment properties, seek out
individuals who not only know their business, but have also owned investment
properties themselves. For example, I run into residential real estate agents
far too often than I care to reveal who are offering all sorts of bad advice
to would-be investors because they are trying to find an investment property
and don’t know the difference between an investment and a primary residence.
Not to beat my own drum, but my experience in these matters is first hand and
once you’ve worked with investment properties you will realize it’s not like
buying a home to live in. Think of it this way, a gynecologist is in fact a
doctor, but would you go to him/her if you had a sore throat? It’s no
different with real estate agents. Find an agent who has experience in
investment properties, first hand, because you seek investment properties in
a completely different approach than you do a home to live in (Again, another
story, another day). The same is true of lenders because borrowing money on
an investment property is extremely different than a primary residence- and
finding out your lender didn’t know that after the project starts can break
you.
If you really want to enter the world of investment properties, be certain of
your goals and stay within those narrow parameters. If you think investment
properties will be “fun” and a “bonding” experience with your teenager
because of too many hours spent in front of the T.V. watching “Trading
Spaces”, think again. Investing in real estate should be approached like any
other investment. If the numbers look good on paper, proceed. If not, put on
your tennis shoes and run like heck!
* The original ABC News story can be found at: http://abcnews.go.com/GMA/
Business/story?id=553568 (http://abcnews.go.com/GMA/Business/story?id553568)
Kimberly Shallenberger-Cameron currently manages the STLagent Team of Real
Estate Consultants in St Louis, MO. Her website is http://www.stlagent.com
(http://www.stlagent.com)
Kimberly publishes the St Louis Real Estate Blog, and also moderates the St
Louis Community Forum Message Board at: http://www.stlagent.com/forum (http://
www.stlagent.com/forum)
© STLagent.com (http://STLagent.com) 2005
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