Precautions for Pitfalls!
This article will save you a lot of headaches if you are new or looking to get into the real estate investment circle or any investment endeavor. Usually the newly charged investor has an epiphany and realizes how much wasted time his capital sitting in the bank or how the 5% returns is barely keeping up with rising living costs and decides to embark on a NEW investment plan to achieve greater returns. And he has a plan and its going to work FOR SURE!!!
Two words to not in the previous paragraph are “NEW” and “FOR SURE”. These terms are common terms used by sales people to entice and charge you up to put down the money and move forward into battle. They are dangerous terms in the world of investing because with risk there is never “for sure”, and with “new” there are going to be situations you have not encountered so I would advise planning and foresight before going into anything that requires a substantial amount of capital expenditure.
Planning for Plan B!
Not be be confused with analysis paralysis (the condition that stops people from taking action) planning a plan B in case the “for sure” thing doesn’t work as expected is wisdom that can save you many dollars in your journey along the investment landscape. You should have at least brainstormed possible negative situations that could happen in perspective to the investment you are considering. If you are not familiar with that type of venture, seek someone who has had the experience. The time spent doing this is well worth the avoidance of pitfalls you didn’t account for. Even if you need to pay for the advice I have found it well worth the investment before jumping into anything that is going to put my hard earned dollars at risk. Fail to prepare, and prepare to fail!
One should have an exit strategy if the investment tanks or turns out to be something you were ready to take on. Instead of losing 100% if things go wrong, have a contingency plan for a worst case scenario and you need to liquidate how the losses will be minimized. One never knows of potential life changes that may need you to access money for emergencies. What are penalties for withdrawing you capital prematurely or selling the property if plan A and plan B don’t work? These are questions that should be asked before signing anything! Having an exit strategy always puts my mind at ease when looking at opportunities to make good returns on my money.
In summary, these precautions are not be negative to stop the investor from taking action. Its a way to reduce the risk by planning without sacrificing the return. Make the plan, apply constructive criticism, refine the plan and execute. This is a sound formula for anything you wish to embark on, especially when your hard earned dollars are going into battle for the first time!