One Word ? ?SURVIVAL?
Five Key Areas of Caution for Novice Real Estate Investors
by Louis ?Lou? Brown

Remember the movie ?The Graduate?? In it everyone has advice for Dustin Hoffman?s character. One person tells him, ?Just one word ? plastics,? to advise him what to get into to be a success. Well, I have word to describe your success when you invest in real estate ? SURVIVAL! If you can just survive, you will win this real estate game ? and the game of financial freedom. After all, that is probably what you are really after. Freedom to allow you to do whatever really motivates you. Whether this is travel, boating, second or third homes at the shore or the mountains, that magnificent mansion ,or some fun and fancy vehicles? whatever you desire, you?ve got a real chance to have it in real estate.

I worry because I see many investors make risky moves early in the game. I see them make choices they may live to regret. You see, I?ve seen plenty of ?newbie? investors leave the opportunity that real estate offers due to mistakes that they make too early in the game. I suggest that any beginning investor be very careful about the choices they make early in their investing careers. One wrong move will take you out of the game, possibly forever. And that would be the worst thing that could happen. You see, I believe real estate investing and holding properties for the long term is the smartest move any average person (and not so average) can make. Truly low risk ? hedged against inflation and can be entered into with a very low investment.

So what should you avoid? I?ve identified five major areas I suggest you be very careful of.

First, I think beginners or those with limited funds should be cautious about foreclosures. I encourage you to pursue pre?foreclosures (making offers to owners before the gavel falls) or post-foreclosures (making offers to lenders after they have taken a property back), but not at the courthouse steps (at the foreclosure sale). You see, you have no idea what that person who is losing their property might do. They might file bankruptcy, which in some cases means your bid dollars could be tied up and it could take a long time to get them released. The foreclosed owner could also decide to take out their misfortune on the lender by kicking holes in the walls, pouring paint on the floors, pouring concrete into the toilets, etc. Ask me how I know this? I?ve seen it! They could also be difficult to move out of the property.

The second area you should avoid is a large renovation early in the game. I suggest that you start with a $5?$10,000 rehab. Get good at knowing your values and costs, learning how to evaluate what you need done to the property and learn how to work with contractors. That learning curve is way too steep when you are attempting a $20,000 or higher renovation.

The third big risk is too expensive a home for investment. Stay in the bread-and-butter range early on. The high-end market is very fickle and unpredictable. Also avoid properties that are too cheap unless you know the area. There may be a very good reason it?s so cheap. Be cautious!

The fourth big risk is a bad tenant early on. I definitely encourage everyone to hold property long term. I preach it because I know this is the best path to true wealth. Only problem is property management seems simple so everyone thinks they can do it. Property management is no different than brain surgery. Just as you wouldn?t let an untrained person operate on your head, you should not operate your rental business without the proper training and tools. Tenant selection, screening, marketing, property preparation, and collections must be taken seriously. One wrong move here early in the game and again, you?ll be out.

The fifth area is getting sued early. Real estate is not a penny ante business. Serious money follows serious risk. A seller, a buyer, a laborer, a contractor, a tenant are but a few of the potential lawsuits that could result from your involvement in this great business. You need to know how to hold title to the property to minimize your personal risk and maximize protection of your other assets.

I could say more, but I don?t want to scare you away. There is a solution? Education. To the extent that you learn what to do and how to do it, then you won?t make that one big mistake too early in the game. You need information and you need tools. For me, the best tools that I?ve found in this business are a system of really well thought out, tried-and-true forms to prevent the problems others have already had. The right forms and a system to follow will ensure you make the right moves early on, and later too. Avoid the really expensive seminars others, like myself, have taken where we only learned one very expensive lesson at a time.

Good luck! Let me know how things work out for you.

Louis ?Lou? Brown is a nationally recognized real estate instructor who has been investing in real estate since 1977. He is the founding president of National Real Estate Investors Association and a past president of GaREIA. Lou has become famous for his cutting edge techniques in property acquisition, renovations, management, and collection. Many more techniques are available in his ?Street Smart Investor Training System? home study courses and forms programs. To learn more about Louis Brown and the informational techniques he teaches, please visit his website at www.louisbrown.com or call 770-939-8283.