Troubles with Traditional Real Estate Investing That Should Be Avoided

The 5 main problems with investing in real estate as the majority of people understand it, are these:

Problem #1:

Paying a lot as a down payment

Generally the greatest hurdle people face when getting started up the real estate ladder, either as an investor or home buyer, is getting money for the down payment. 20-30% down is not uncommon, and apart from the obstacle for a lot of people in raising this money, it can mean the return on your investment will be significantly lower. If you can find a deal with 5% or lower down, the ROI soars through the ceiling (just as long as it's still a lucrative deal).

Problem #2:

The home owner trap

For anyone who acquires a few properties, there is a point at which he tends to get into the "landlord trap." At this point the investor is so busy managing and maintaining what he already has, that he does not have the time to look for and purchase more homes.

A way around this is to hire the property management, and while this is a perfect solution in some cases you have to be mindful of the significant accumulated price as a result. Other clever solutions are available for a beginning investor, that include negotiation methods that see the tenant happy to be in charge of any repair and maintenance.

Problem #3:

Negative money flow

Many investors view compounding appreciation as the real cash builder when it comes to real estate investment. The complication is that to enjoy that increase, most investors fund it on an ongoing basis by way of loans. Often, when you invest in more costly properties, the rental returns simply do not keep up with the home values which means it is VERY difficult to create positive cash flow. And for people that minimize the down payment like we suggested above, the problem is made even worse by having higher loan payments.

Before, if you wanted to enjoy the large payoff over time you had no option but to fork out the negative cash flow, however it is not that way any more. There are several ingenious real estate investing techniques that will let you stay cash flow positive and also enjoy the benefits of appreciation.

Problem #4:

High risk

Even if you don't consider the ROI (which you should never do in practice), placing more cash in one deal makes it a risky proposition. A basic concept for investing in stocks is determining your position sizes, and that principle also is essential in real estate investment planning. The greater your investment in a single trade, the more you're at risk. If you've got nothing down in a venture then obviously your risk is significantly reduced.

Problem #5:

The Do it Yourself repair trap

Most people think the road to real estate investment success is to get properties, fix them up, and flip them for a profit. Even though this is one of many practical tactics, few realize that this does not require doing the repairs on your own.

A secret to success in real estate is leverage. Until you leverage your time by hiring other people for any improvement or repair work you'll be seriously confined in your investing potential. Doing renovations all by yourself will keep your investing business small.