If you’re just getting started investing in property, you’re probably anxious to get started and buy your first property.
Before you get started, learn from mistakes many seasoned investors made in the beginning and avoid making the same mistakes yourself. When it comes to property investment, there are a few things to avoid.
1. Avoid overestimating how much you’re going to be able to make on your deals. You want to make sure you are able to buy properties so that a profit is already built in. Many investors want to get started so bad that they purchase a property that leaves them too little room to make money, they don’t sell it as quickly as they anticipated, and then end up losing money on the deal.
The same goes for investing in property to hold. If you end up having to sell that property for some reason, will you still make a nice return on your money?
2. Avoid investing in mortgage pre-foreclosures. This field is highly competitive, and in the current market, there’s not much equity to be found out there. Owners in mortgage foreclosure are impossible to get ahold of – they’re used to dodging creditors – and if you do end up buying one of their properties, you’ll then have to deal with bringing the mortgage (and probably the taxes) current before you can do anything with it.
3. Avoid the tax sale. Again, competition is a major problem here. Good properties are usually bid up close to retail value (by people violating Rule #1 above), and there’s not much money to be made here. You’ll also have to come up with all the cash needed up front, at the tax sale, and you can’t inspect the properties beforehand.
The only surefire way to get bargain real estate is by investing in tax foreclosures, but only after the tax sale. You can see which properties got good bids at the tax sale, so the research is essentially done for you. Towards the end of the redemption period, properties that are still unredeemed will be good candidates for purchase directly from the owner (who’s at the “do or die” point in the process). These owners are frequently willing to part with their deeds for a fraction of the property’s value.
And the best part about these properties? They almost never have a mortgage. Because mortgage companies pay off back taxes to keep properties out of tax sale, once a property has made it that far you can be relatively certain there is no mortgage. Free and clear means the maximum profits for your investment!
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