Rule #3
Avoiding the Hazards

You need to Avoid the various Pitfalls

As I’m sure you realise, all investments carry some risk. In real estate, your three potential pitfalls are:

  • Over borrowing.
  • Poor assessment of the marketplace.
  • Buying property with fragile tenants.

Here are 12 Vital Principles
You Should Strive to Follow …

What’s important is for you to stay just below what we affectionately call your “Threshold of Insomnia”.

This is the point at which you start to lose sleep — perhaps it’s through over-borrowing, or maybe by making a poor assessment of the market. However, to give you a hand … here are a dozen Dos and Don’ts, which seem to have stood the test of time.

  1. Do maintain enough cash reserves. Nothing cures investment insomnia faster than having enough cash to meet any planned (or unplanned) obligations. And keep a sharp eye on smaller items, like equipment and maintenance bills, which can quickly add up.
  2. Do make an investment plan with which you feel comfortable and then stick to it. You need clear Investment Objectives & Buying Criteria.
  3. Do get a good financial calculator, or software program; and learn to use it properly. (The Hewlett Packard HP-12C calculator is simple and small, yet has tremendous capability).
  4. Do keep up your pursuit of knowledge … attending seminars, staying up with current trends, plus monitoring the news and legislation affecting real estate. Knowledge minimizes your risks and maximizes your profits.
  5. Do retain (and retain means pay fees to) top consultants. The money you pay them will be more than returned to you in the deals they’ll pull off for you.
  6. Do avoid personal guarantees on mortgages wherever possible — try to make the property your sole security. (This is known as non-recourse finance)
  7. Do commit only a small part of your funds to speculative investments. They may appear glamorous on the way in, but they are often painful on the way out.
  8. Do not make deals on a handshake — put them in writing.
  9. Do not go into joint ventures or partnerships without careful consultation with your retained advisors.
  10. Do not commit proceeds from the sale of one property to finance another, until they are fully realised — too many ‘sure deals’ have an uncanny habit of not coming through.
  11. Do not get involved in mortgages, where the payments can be widely varied by elements outside your control.
  12. Do not acquire properties, which have substantial negative cash flows.

And REMEMBER: It is always wise to live within your means and re-invest your profits. Because … it is better to be inconspicuously wealthy than to be ostentatiously poor.

Here’s Your Check List So Far

  • Be creative and flexible in your property dealings.
  • Make a plan based on your Net Worth — and stick to it.
  • Look for properties with income and growth.
  • Master the DOs and DON’Ts of real estate.

By the way, you may care to listen to a regular Podcast … which is tightly edited, and made available to clients on a complimentary basis.

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What you covered in the previous RULES …

#1 Decide on Your Investment Plan

#2 Understanding Your Investment Profile