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Mistakes to Avoid in Real Estate Investing – Part 2

Entering the real estate market as a real estate investor can be a challenge; Receiving funding, getting the residence rented, setting up bank accounts, figuring out how to handle utilities, etc. The list doesn’t end. Of course, if one has done their research before beginning, the above tasks aren’t near as complicated as they sound. However, often the same mistakes plague new investors as they begin to experience the field of real estate investing instead of just reading about it. Below are five more of the most common mistakes that people new to the game tend to repeat.

1.) Taking on the Role of Maintenance Man - If one is mowing lawns, showing properties for rent, meeting with tenants to sign leases, fixing leaky toilets, etc then they are not spending time looking for more properties or fishing with their family. Although it is a good way to save money (doing all of the work), it quickly turns the investment properties into a part-time business, and lets face it, if we wanted a part-time job, we could bag groceries at the local supermarket. Manage the finances well, but when the time comes that one can afford to pass the day-to-day work onto a part-time maintenance man and/or property manager; do it!

2.) Getting Caught up in Material Things - Many people want to have what the Jones’ have. Don’t spend the profits from the real estate investments on new cars, clothes, and junk; at least not at first. Just like any other business, one must be an entrepreneur to start form scratch and create an empire. This can’t be done if all of the profits are getting blown on material things that do NOT build wealth, rather they deteriorate it.

3.) Buying High - Just like stocks, most of the money in real estate investing is made during the purchase. If one pays to steep a price for the property, their profits will be damaged until they either sell the property or pay it off. Be very, very careful and intelligent when purchasing a property. If time is taken and a valuable deal made, the property will produce a profit stream and steady rent increases for years to come.

4.) Cheap is Good - There are times when cheap is very good, but there are also those properties that are cheap for a reason; they’re health hazards that need to be bulldozed. If a property appears to be listed extremely cheap, make sure a professional plumber and/or electrician inspect the home thoroughly. This will ensure that one doesn’t get stuck with a property that initially cost $25,000. but in-the-end cost $50,000.

5.) Too Little Cash - Cutting one’s cash flow to close is a mistake that can cost them their entire empire. Don’t get caught with a property that needs immediate attention (roofs, furnaces, walls, bathrooms, etc) and funds that you don’t have. Always keep at least 10% of each property’s monthly rent as a reserve for future repairs. Try and keep 5% of the rent set aside for any future vacancies that may arise, and always keep at least a full month’s rent on hand for paying mortgages. Often the tenants’ checks are not received before the mortgages are due, meaning that their needs to be extra money in the bank account to pay mortgages before the rent checks are received.

Be aware of the above five snags that beginning investors often make. Everyone learns form mistakes, but if one can learn form the mistake by reading it here instead of with their first property, then that’s one massive migraine that won’t happen.

How to Keep Your Spouse Safe in Business

As a structuring adviser to investors and business owners we often come across a widespread mistake that many people make.

That is a spouse being offered as a guarantor to the financial institution, landlords or creditors of a business. Often their personal guarantee is even needed for the agreement to proceed yet it is given.

Why? Because the advisers do not defend you and point out that it’s not required.

The upshot is that if total business or investment collapse happens, both spouses are fully liable rather than just one. Sure, the creditor, bank or landlord asking for your spouses guarantee will explain it is necessary 100%.

This is because it is in their. Yet it is not in your interests. My advice is NEVER give your spouses guarantee in business or property transactions if you can keep away from it.

I have developed over 80 million dollars in property, and guaranteed a number of numerous business and banking obligations, purchased multiple investment properties, – and my wife has never signed a personal guarantee on the transactions. Why?

To protect her from the potential risk and obligation. How did I avoid her being liable? By saying ‘no’ to the banks and creditors when they asked. Did it interfere with her legal or matrimonial rights to recuperate the property if we separated?

No, — she still receives the assets because she jointly controls the Trusts and numerous borrowing. This is not about removing power away from your spouse and potentially wealth, it is simply to do with reducing your risk to your family.

Examples of this include:

1. Borrowing funds from a lender to buy an investment property or even your family home. If one spouse is a homemaker, has no income or their income is not required to meet debt servicing criteria of the bank, then why allow the bank to take their guarantee?

The only purpose of the guarantee will be to use more pressure to your household if you have difficulty, and both spouses go bankrupt rather than one (which may be viewed as malicious in this light).

2. Handling land-lords when it comes to commercial leases and guarantees. Ensure you attempt to divide leases out into separate ‘tenancy companies’ and make one spouse a director of this company.

Your opening position should be no personal guarantee, and if ‘no personal guarantee’ is a deal breaker with the landlord, then only the director/one spouse gives a guarantee.

Try not to give an unlimited guarantee, limit it to say XX months rent, or a fixed sum as a cap.

3. Dealing with creditors over personal guarantees. Creditors in business will normally ask for a personal guarantee.

Decline to give it if you can get away with it, and most of the time you can. Where you have to give one, just as with a landlord ‘limit the guarantee’.

In summary, protect your spouse from liability if you can help it. Personal guarantees and spouses should not go together. If you are negotiating with a landlord or creditor as a business owner and have to supply a guarantee, try not to give a guarantee at all, or limit the guarantee to a fixed sum

(Eg: 6 months rent. If your spouse has no income, you should be able to avoid their guarantee being given to a lender/bank)

Try using a mortgage broker to achieve this. Usually the banks (if dealing direct) will be very difficult to manage on this issue, especially in this recessionary climate.

Investing in Spanish Property – is It Still an Attractive Proposition?

So is buying a property in Spain still an attractive proposition?

From our experience, it still can be; but it is now more difficult to generate a good return.

Whilst some lower end, especially re-sale, Spanish property is becoming increasingly difficult to sell OR rent, larger more luxurious specification property continues to be in high demand.

None more so than Spanish Golf course property. Demand for detached golf property, alongside the palm lined fairways of water filled courses, remains exceptionally strong and we cannot see this changing for the foreseeable future. Indeed, this appears to be the focal point for many Spanish developers as many exciting, high quality Golf Resorts continue to emerge from often barren, yet usually stunning locations.

Morning tea to first green in minutes

The attraction of buying Golf Property in the Costa Blanca region of Spain comes from the exceptional quality and location of the developments. The ability to almost guarantee your own ‘green belt’, even drive your own golf buggy to the course, is a big draw for those looking to acquire golf property as either an investment or for personal use.

Although they are still abundant, the predilection for buying on ‘council estates in the Sun’ is on the decline and the average purchaser of Spanish investment property has now set their sights much higher. And this can only be good for the future of property investment in Spain.

Most developers have very much upped their game and it’s not just the quality of golf property we now see coming to market that has increased dramatically. Golf courses are now designed as high-class resorts, complete with health clubs, spas, restaurants and commercial centres; with the emphasis on quality rather than quantity.

The results are staggering for both investor and second homebuyer alike, but only if you get in quick – an eighteen-hole golf course only has so many superb properties on its perimeter. That’s not to say the surrounding, second line homes are not fantastic, rather the best plots on these developments really are Hot Property.