The 8 Big Investing Mistakes You Need to Avoid

If you've ever invested in real estate, you probably know some of these mistakes too well. If not, learn from ours! 

1) Buying In Spite of Horrible Neighbors

If the house next door has a house with a boat sinking in the front yard, rusty old car piled up on cinder blocks, an old camper from Woodstock with extension cords running to it and the lawn hasn’t been mowed or cared for since the Reagan administration…think again about your decision to buy.

No matter how much you fix up a house, you cannot change the neighborhood. The neighborhood will play a large role into the buyer’s decision whether to buy or not buy. When investing in real estate, always think ahead to the sale. Think “what would a buyer see that would detract them from buying this house?”

If the predominant answer you get is the next door neighbor, then move on. There are other flips in the sea . . . 

2) Hiring Your Friends

This is always a recipe for disaster. Although I do hire family members (they are in the legitimate trades after all), hiring a down and out friend to paint or roof or do any other subcontracting work on your project is usually a recipe for disaster, leading to wasted time and cost overruns. In many cases, you’ll end up doing the work yourself anyway.

Bottom line, if you hire your “friend” to work for you on a real estate project, chances are pretty good, he won’t be your friend when the project is done.

3) Buying Houses With Title Issues

This is especially true if you are new to real estate investing. Many guys I know make millions buying these kinds of problematic properties. So don’t get me wrong,  there is opportunity here, but only if you know what you’re doing.

Whatever you do, don’t buy a house with a title issue if you are new to real estate investing. Unless you either have lots of money or a real good understanding of title and title law, stay away because it could take years and lots of money to fix.

To avoid these mistakes, have a solid plan laid out with your attorney. But only if you feel confident you can go forward with it.

If you do venture down this road, have a solid plan with minimal loss to simply walk away if the costs run you too high. Better yet, if you’re new, don’t bother and aim for properties with clean title.

4) Hiring Contractors Based on “Trust Me”

This is a painful one. Too much personal experience here, especially in the early days.

I’m trusting by nature, but when it comes to general contractors, beware of the contractor who says“trust me I’ll take care of you”. When you hear those not so magic words, kindly show him the door.

This is especially true if they are reluctant to give you any kind of plan, estimate or time frame for the rehab completion.

Even more importantly, make sure they are licensed, insured and you get everything in writing prior to him setting foot into your property. Lastly, make sure you have an agreement of terms – what he will do for you and exactly by what time and date he will complete it.

Some contractors are notorious for “flying by the seat of their pants.” Don’t fall for it. Get it all in writing.

5) Not Sticking to Your Numbers

Way too common of a mistake here. Aren’t we all guilty of this one?

This is what we call “eraser math” and unfortunately it rarely works out in your favor. If you are about to buy a house and the rehab numbers, the comps, the ARV, the 70% rule don’t quite match up – don’t make the mistake that far too many real estate investors make.

If the numbers don’t work, they don’t work. Face facts and move on.

• Could you get your rehab costs lower? Could be.
• Could you sell it for a few thousand over market value? Possibly.
• Could you buy it for a few thousand over your maximum ask price and still make a profit? Maybe.

Way too many question marks here . . .

Don’t buy a house if you have to adjust your spread sheet to make it work. Don’t lower your rehab budget or add to the selling price. In most cases, you’ll go over your budget and not under.  And then you’ll be under water.

 6) Buying on Emotion

“I love this place! It has so much…potential!”

In real estate investing, talk like this can get you in financial trouble quickly. The problem is that it’s easy to get carried away with emotion. I’ve done it. We’ve all done it. It’s hard NOT to do it.

However the more “detached” you can be, the better. Of course, this may cause you to miss a few deals on the way, which is fine. But the more you stay true to the rules and the fundamentals and theless you lead with emotions, the better off you’ll be.

When you get even the slightest tingling feeling of emotion coursing through your veins, take a break. Remove yourself from the situation. If possible, think with your logic…not your emotions.  And if you can’t get the price you want, move on to the next offer. There will be other deals.

7) “Faking It”

For the new investor, this is so tempting to do. Don’t be tempted to stretch the truth and be more than you are – especially when you are first starting out.

It’s best to be honest.

Yes, it’s less glamorous.

Yes, it may lose you a few deals.

Yes, it may seem like the wrong thing for your business.

But in the long run, it will get you more deals, more partners, more investment dollars and more listings because you’re honest.

People by and large want to help other people. It’s human nature. So partnering with a mentor or someone who knows the ropes can help you get through this early time.

If you don’t have any house flips or wholesale deals under your belt already, it’s perfectly alright to tell people as much. In many cases, you’ll get some old-timer real estate investor to take you under his wing and help you along. Better yet, you could pay for a good honest mentor/coach and ride his coattails to your first deal.  Either way, don’t “fake it.” Be up front and honest.

8) Breaking Promises…and Breaking Trust

The local real estate investing community is tight-knit. Word travels fast about people who are dishonest and untrustworthy. And the quickest way you can make a bad name for yourself is to make promises you cannot or don’t choose to keep.

Reputation is EVERYTHING.

So go out of your way to make sure you keep yours intact. As they say: “Reputation is hard to earn…but easy to lose”

And you can destroy your reputation that took you any years to build up in mere seconds. Sad but true.

So stick to these principles instead:

• Don’t make a promise you cannot keep
• Do what you say and say what you’ll do
• If you give someone your word, don’t go back on it….even if it may cost you thousands of dollars
• Do your best to treat others as you would like to be treated
• Be reliable. If you say you’ll be at a certain place at a certain time, be there
• Be open and honest, be transparent
• Be fair, don’t take advantage of people

Breaking promises can crush your real estate investing career quickly. Don’t be paranoid about it, just do what is right. If you do that, then chances are you’ll be in good hands.

But when you break your promises and develop a reputation as someone who cannot be trusted, word will spread. Reputations is everything in this business and trust me, word will get out quick.

There are a lot of mistakes you can make in real estate investing, but mistakes are what you learn from, so don’t go out of your way to avoid them.

Source: Bigger Pockets, Mike Lacava

Owners Who Foreclosed Back as Buyers

Families who had once lost their home to foreclosure following the housing crash are now re-emerging and looking to buy again, The Wall Street Journal reports. 

As Stuart Miller, chief executive of national homebuilder Lennar Corp., puts it: More people are “coming out of the penalty box.” 

Some builders have a growing interest in reaching out to these “boomerang” foreclosure buyers. For example, builders like K. Hovnanian are providing sales staff with fliers that detail mortgage eligibility rules for families who have undergone a foreclosure or bankruptcy. 

"The industry is saying, 'Pay your dues and then get back into the market,' " says Dan Klinger, president of K. Hovnanian American Mortgage.

In order to qualify for a mortgage backed by the Federal Housing Administration, families must wait three years or more to apply again following a foreclosure or short sale. Using that benchmark, about 729,000 households that were foreclosed on during the housing crash are now eligible to apply for an FHA mortgage–up from 285,000 a year ago, The Wall Street Journal reports. 

Fannie Mae and Freddie Mac require a much longer wait than FHA to qualify for a loan after a foreclosure or short sale, up to seven years. 

But just because “boomerang” families are allowed to apply again for financing for a home purchase doesn’t mean they’ll qualify for a loan, housing experts say. These families will still have to show a strong credit score and meet stringent underwriting standards. 

Market Stats

Yep, this market is pretty hot

Entire MLS (All Areas)

Residential Highlights

• 20.6% increase in number of closed sales for September year-over-year (3,147)
• 9.4% increase in average price (sold) ($306,633)
• 35.4% decrease in average days on market (64)
• 17.8% increase in number of closed sales TYD (28,218)

Condo/Townhome Highlights (All Areas)

• 49.6% decrease in average days on market (64)
• 10.3% increase in number of closed sales for September year-over-year (802)
• 16.8% increase in average price (sold) ($186,843)
• 9.5% increase in number of NEW listings (968)

~Click here for Full report of entire MLS

This only means 1 thing: the market is hot right now. More people are buying, and faster. Sellers are delighting in so much attention for their homes. Buyers are loving the 3.4% rates. The "doom & gloom" is just not happening in Metro Denver. 

Reluctant Sellers Holding Up the Market?

While home prices are making gains in many markets, many home owners continue to wait for home prices go up even further before wanting to list their homes for sale, Inman News reports. As such, inventory levels have been tightly constrained in many markets, resulting in shortages of available for-sale listings. 

I myself have seen the consequences of this on buyers: reasonably-priced houses whisked away as soon as they're put on the market; multiple bid situations making buyers feel pressured (or at least frustrated if they lose); and not much inventory to choose from.

"Many sellers are still not aware of how strong our market is," Charles Roberts, co-owner of Your Castle Real Estate who serves as a director on the Denver Board of REALTORS^®, told Inman News. "They still think it's a bad market to sell. Our job is to inform them about the market and explain to them that with a rising market, it has become a strong seller's market and to walk through their options."

In many areas, it’s a seller’s market right now, and that surprises many home owners, adds Jason Lopez, a broker at Atlantic & Pacific Real Estate in the San Diego area.

“Now it doesn't mean prices are skyrocketing like past cycles, but with the chance of multiple offers, it makes the process more appealing,” Lopez told Inman News.

And prices may never skyrocket like they did - tough lessons learned are better not repeated. 

So sellers, right now would be an excellent time to sell your home. Why? 

1) You have very little competition from other sellers. 

2) Prices have gone up, so you can price well. Many of my sellers were surprised that their home sold recently for what it could not get close to selling for 1-4 years ago.

3) Buyers will look at your house because of the low inventory, and if you're priced well in your market, you will get multiple offers! It's hard to say how long this seller's market will last. 

10 helpful tax tips for Sellers

The IRS has recently issued a helpful list of 10 tax tips all homeowners should keep in mind when selling a home:

1. You are usually eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.

2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

4. If you can exclude all of the gain, you do not need to report the sale on your tax return.

5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

6. You cannot deduct a loss from the sale of your main home.

7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.

8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

9. If you received the first-time homebuyer credit and within 36 months of the date of purchase the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year's tax return.

10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

For more information about selling your home, see IRS Publication 523, Selling Your Home.

Trulia: Buying a home is 45% cheaper than renting

It's more affordable to buy a home than to rent in the 100 largest metros in the nation. That's the case if you plan to stay in the home for seven years, which is the average time Americans traditionally live in a home before moving.

The findings come from real estate data provider Trulia, which conducted a study of key market factors impacting the cost of homeownership. Based on asking prices and rents from the summer, the company claims that, on average, buying is 45% cheaper than renting those areas. That’s a savings of $771 a month.

Trulia Chief Economist Jeff Kolko cites the faster pace of rent hikes versus those of home prices.

“Asking home prices have started to rebound and have risen by 2.3% year-over-year in August (3.8% excluding foreclosures); however, rents have risen more (4.7%),” Kolko notes. “This means that prices are lower relative to rents than they were a year ago.”

“But more importantly, mortgage rates have fallen,” he adds. The 30-year fixed-rate mortgage sits at 3.55%, hovering only six basis points above the record low average hit in July.

To calculate whether renting or buying costs less, Trulia assumes people can get a low mortgage rate of 3.5%, itemize their federal tax deductions, are in the 25% tax bracket, and will stay in their home for seven years.

However, how much cheaper it is to buy a home than to rent depends on where you live.

Buying is 24% cheaper than renting in Honolulu, 28% cheaper in San Francisco, and 31% cheaper in New York, Trulia found. (Click on the map below.) Homeownership is even more affordable in Detroit, where buying a home is 70% cheaper than renting, and 63% cheaper in Oklahoma City and Gary, Ind.

With a higher mortgage rate (4.5%), failing to itemize and a shorter time horizon (five years), Trulia says renting becomes cheaper than buying in New York, San Francisco, San Jose, Calif., and Honolulu. Buying remains cheaper than renting in the other 96 out of the 100 largest metros.

If buying is so inexpensive relative to renting, why aren't more people doing it? Kolko responds that high unemployment is preventing people from saving for a down payment.

“And keep in mind, in the metros where the cost of buying is less than half of what it would cost to rent over the long term, it still takes years to save enough for a down payment,” he says. “It may be 56% cheaper to buy than to rent in Denver, for instance, but it takes more than eight years to save enough for a down payment there.”

Mortgage Rates Even Lower

Mortgage rates have moved lower every day this week.  Today's move was even more pronounced than yesterday's, carrying rates decisively into NEW all-time lows.   Today's data and events during the domestic market session were of little concern to Secondary Mortgage Markets, which began the day in stronger territory thanks to the overnight sessions in Europe and Asia.  From there, MBS (the "mortgage-backed-securities") that most directly influence rates) essentially held stead for the rest of the day, allowing lenders the ability to pass on more of the improvements.

The continued push into lifetime low territory lets us know that lenders are actually doing a fairly aggressive job of moving rates lower.  Adding to that sense of aggressiveness is the fact that most lenders have priced in the recent increase to Guarantee Fees which equates roughly to .125% higher rates.  For thefirst time ever, best-execution on 30yr Fixed Conventional Loans is 3.375% at a majority of Lenders, and even lower rates are viable choices at a few lenders for a few scenarios.

Check out these UNBELIEVABLE rates:

• 30YR FIXED - 3.375% - 3.5%
• FHA/VA - 3.25% - 3.5% (varies more between lenders than conventional 30yr Fixed)
• 15 YEAR FIXED -  2.75% - 2.875%%
• 5 YEAR ARMS -  2.625-3.25% depending on the lender

How can I improve my credit score right now?

As you know, your credit score is that 3 digit number that determines a lot in your financial life, including whether you can buy that beautiful house you're drooling over. So how can you improve or keep your credit score high?
There are several factors that contribute to one's score. Here are 5 ways to improve your credit score now:

1) Have multiple types of Credit: Lenders want to see that you have a history of multiple types of credit. If you only have one credit card, open up another. If you're going to buy a car, don't pay cash but pay a good downpayment instead and get a loan. Your credit score will go up as you pay. 


2) Pay down your debt: The more debt you have the riskier you appear to a lender. Paying down or paying off debt is a great way to make yourself more desirable for a home loan. 


3) Be on time with every bill. Don't be late! You can set up automatic payments from your checking account to pay off your credit card each month, and get those miles you need for a trip to Italy!
 
4) Do NOT under any circumstances open new lines of credit, no matter how small, before you start looking for a home.


5) Build your credit history: Younger borrowers are always at a slight disadvantage because they have a shorter credit history. But the longer you have lines of credit open (never close a line of credit! Even if you don't use a card, just keep it open), the higher your score will be!

How do I Know This House is "The One"?

With so many homes to choose from, how do you know if this house is "the one?"

Sounds like a dating question. And, coincidentally, using some of the same criteria used to determine if you're marrying the right person may also help you decide which home is the best for your needs. 

The last thing you want is analysis paralysis: a common disease caused by overthinking a decision, which then causes inactivity. It's horrible!

So, how can you be confident that the home you're buying will meet your needs? Start with some basic guidelines. Make a list of your must-haves, needs, and wants. These are truly three different categories. Yes, some things you list may overlap but after your list is started, you'll begin to see what really matters to you. Sometimes buyers will be shopping for a home with a pool, but when they finally make a list they realize that money is very tight and the added cost of heating a pool will be too much of a drain. So they revise their home-buying desires and start house-hunting all over again. It would've been far more effective to have considered this from the start.

Next, study the home or apartment that you're currently living in. What are the positive aspects of it? Are there things about the place you live in now that you absolutely can't stand? Taking stock of what is working and what isn't in your current home provides a good blueprint for the things you should consider when searching for your next home. Remember to be honest. Sometimes we tend to forget the bad things about a home due to its sentimental value. If you look at your current home with a critical eye, you'll know which areas caused a big headache and then you can be sure you don't buy another with the same problem.

For instance, maybe the home needs a lot of fixing up and you and your spouse barely survived the remodel without tearing each other apart. You might then want to search for homes in much better condition to limit the fixing up. Our minds have a wonderful way of forgetting the bad, once the bad is over. But, trust me, you'll remember once you're back in the same scenario again.

Do your homework and get everyone's feedback. Unless you're buying a home alone, you should spend time meeting with those who will be living in the home to discuss what's important. Sounds obvious...yes, but guess what? A lot of times Buyer One and Buyer Two don't even talk about what's really important to each other until they start searching for homes. Then they realize how truly different their views and expectations are and see the necessity to compromise a little. Time is better spent reviewing and discussing first. That way, an agent can make sure the properties being shown are in line with everyone's desires.

Finally, plan ahead. Especially if you're moving a family or you're moving in with someone else. Use a synchronized calendar, like Google, to help map out all the meetings and showings. There will be lots of important meetings to attend and if you can't get the necessary buyers there, the process will be stalled. Without the necessary buyers present, you can't be confident the home will satisfy. Plan. Schedule. Commit. This will assure that the home-buying process will be a success.

Survey Says: Generation Y Aspires to Homeownership

ERA Real Estate's survey of millennials, born from 1978 to 1995, found that 32 percent have already achieved homeownership — a purchase more than 90 percent of them made because they either wanted their own place or viewed ownership as a symbol of achievement.

Homeownership is a future goal of 64 percent of non-owners polled, and 53 percent of millennials who do not yet own houses view them as good investments. Given that 67 percent cited the importance of affordability and nearly 80 percent deem low real estate taxes to be very important, the survey indicates that the recession has played a role in Gen Y's thoughts on home buying.

The survey also reveals that 83 percent consider proximity to work important; while proximity to family and friends was cited by 67 percent and 65 percent, respectively.

Sixty-two percent of the millennials queried view living space as important, and Gen Y buyers are seen as being more practical because almost 70 percent cited the importance of built-in amenities but only 26 percent consider style to be important.

ERA Real Estate President and CEO Charlie Young notes that "Gen Y clearly understands the long-term value of homeownership from a financial standpoint" and they "view a home as a cornerstone in building a family and spending time with friends, not just a place to eat and sleep."

Case-Shiller: Home prices rose in June in 13 major cities, including Denver

Case-Shiller reported that home prices rose in June for 13 major cities across the U.S. from the same month last year, the first year-over-year increase since the summer of 2010.

In Denver home prices increased 4%, which is not a small number. This and the fact that vehicle sales are up 36.2% in Colorado are continued signs indicating growing consumer confidence in the economy. 

Below is a chart showing home price increases 

June home price index

City	June index	Change from May	Chg. from June 2011
Atlanta	91.74	4.4%	-12.1%
Boston	154.43	2.5%	0.0%
Charlotte	114.45	1.0%	0.8%
Chicago	113.61	4.6%	-1.7%
Cleveland	101.58	2.2%	0.9%
Dallas	120.15	1.3%	3.7%
Denver	131.06	2.0%	4.0%
Detroit	71.18	6.0%	2.5%
Las Vegas	93.94	1.5%	-1.8%
Los Angeles	168.57	1.7%	-0.6%
Miami	145.62	1.6%	4.4%
Minneapolis	118.74	4.8%	5.7%
New York	163.4	2.1%	-2.1%
Phoenix	114.68	2.5%	13.9%
Portland	138.51	2.5%	3.0%
San Diego	154.76	1.1%	-0.2%
San Francisco	139.01	2.8%	3.0%
Seattle	139.89	1.8%	1.8%
Tampa	132.84	1.9%	3.4%
Washington	189.75	2.1%	3.9%
Composite-20	142.21	2.3%	0.5%
The indexes have a base value of 100 in January 2000; so an index value of 150 translates to 50% appreciation for a typical home in the market. Source: S&P Dow Jones Indices and Fiserv

4 Strong Reasons to Buy a Home Now

“It’s hard to argue against buying a house now, assuming you can get a loan,” writes John Waggoner, a columnist with USA Today. Sure, Waggoner says that getting a credit check for approval of a mortgage can be a “only slightly less intrusive than a CIA background check,” but for those who are able to qualify, a lot of analysts say that now can be a good time to purchase a home.

1. The price is right. The median single-family home price hit its lowest in more than a decade when it reached $154,600 in January, according to the National Association of REALTORS®. That was the lowest since October 2001. During the height of the housing market in July 2006, the median home price for a single-family home was $230,900.

2. It’s cheaper to buy than rent. In nearly every major metro market, it is cheaper to buy a home than rent. Rents have been on the rise the last few years and are predicted to continue to rise. Meanwhile, home affordability is at record highs, which means that buying a home is more within reach to the median income family.

3. Inventories of for-sale homes are shrinking. Ned Davis Research estimates that excess inventories of homes to be eliminated by the end of next year. “When excess supply dries up, people start building more new houses, which has the virtuous effect of reducing the unemployment rate and increasing the economy generally,” according to the USA Today article.

4. Mortgage rates are at record lows. Mortgage rates have hovered near record lows for weeks, which has helped pushing housing affordability higher. For example, the average 30-year fixed-rate mortgage, which is the most popular among home buyers, is 3.59 percent, according to Freddie Mac—just above its record low set on July 26 of 3.49 percent average. “It’s conceivable that at some point in the next 30 years, your interest rate would be less than the rate of inflation,” writes Waggoner for USA Today.

Source: “If You Can Pull it Off, a House is a Smart Investment,” USA Today (Aug. 9, 2012) 

NBC: Denver #2 fastest selling real estate market in the country

Denver just keeps doing it. It is the 2nd fastest selling real estate market in the country, at lightning speed of 33 days! Sellers, it is a SELLERS MARKET in Denver! Price your house right, and it WILL SELL!

2. Denver, Colo.

•  Average number of days on market: 33
•  Median home price: $269,000 (27th highest)
•  Population: 2,543,482 (27th highest)
•  Unemployment: 7.51 percent (67th lowest)

The 33 days to sell a house in the Denver area is actually up by 10%, one of the very few metro areas to see an increase in the time it takes to sell a home. Denver was not as hard hit by the housing bust as many other metropolitan areas. Home prices from their peak in the first quarter of 2006 to the fourth quarter of 2011 dropped just 11.1%, well below the national average of 34.2%. A median family income of $75,000 and an unemployment rate of 7.5%, both well below national averages, are positive signals for a housing market likely to remain on stable footing. The only bad news is that housing prices are not expected to jump anytime soon. Home prices are projected to rise 0.6 percent in the Denver area from the fourth quarter of 2012 to the fourth quarter of 2013, compared to 4.2% in the U.S. in general.

Here are the other top 4 fastest housing markets in the country. Notice the unemployment rates on each are very high:

1. Oakland, Calif.

•  Average number of days on market: 24
•  Median home price: $379,000 (12th highest)
•  Population: 4,335,391 (16th highest)
•  Unemployment: 9.56 percent (20th highest)

3. Anchorage, Alaska

•  Average number of days on market: 43
•  Median home price: $289,500 (23rd highest)
•  Population: 380,821 (20th lowest)
•  Unemployment: 6.13 percent (22nd lowest)

4. Fresno, Calif.

•  Average number of days on market: 43
•  Median home price: $174,900 (58th lowest)
•  Population: 930,450 (62nd highest)
•  Unemployment: 15.54 percent (2nd highest)

5. Bakersfield, Calif.

•  Average number of days on market: 44
•  Median home price: $149,500 (23rd lowest)
•  Population: 839,631 (60th lowest)
•  Unemployment: 14.14 percent (4th highest)