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What not to do when investing in real estate

What Not To Do When Investing In Real Estate

Property can be a sensible and profitable investment, but when someone who lacks knowledge and experience attempts to make money by investing in real estate things can go very wrong.  There are two main reasons for this. The first is that they can easily make a mistake, for example by buying the wrong property or stretching their finances too far. The second is rather more sinister: there are people out there who will lay traps for anyone who they think they can get some money from. There are various scams involving real estate which investors should be aware of.  

In terms of mistakes that investors can make by themselves, these often relate to the choice of the property which is bought. It is important to have a good understanding of the real estate market in general and about the specific property that is being bought in order to make sure that you are making a good purchase. Too many people have bought properties only to see prices in the area stall, or even fall, or have invested in properties then turned out to have serious problems that would cost more to repair that they would make from reselling it. The investor should make sure that they are buying in an area where prices are rising and are not likely to stop doing so. They should make sure they are buying a property for which there is a demand, either for rent or for sale, and on which they are going to be able to make a profit. If they will have to make repairs in order to increase the value then they should be sure of making a profit after paying for this work.  

The sorts of scams which trap real estate investors usually promise huge profits that will be made quickly and at no risk to the investor. This is the same line that accompanies most scams, in any area of investment, and such claims should always be viewed with extreme suspicion. They usually offer an investment that sounds great but which is actually illegal or impossible. They often explain their investments in convoluted and confusing ways so that the investor doesn’t really know what they are putting their money into. If an investment is legitimate then the person offering it to you should be willing to answer any questions you have until you understand it completely, and you should also be able to get independent advice before you hand over any money, without the person who you are dealing with trying to put you off seeking it.  

Some fairly common scams involve con artists who manipulate the prices at which properties are valued, so that it seems they are offering you a bargain price, well below the market value. They might, for example, tell you that they are selling you the property at a wholesale price and that when you sell it on at the market value you will make a huge profit. They will show you that the house has been valued at a much higher price that the one they are offering- however, they will have arranged for the property to be over-valued. They will be asking you for the actual market price, so you will make no profit, but they themselves will be making plenty of money since they have actually bought the property for far less, having made an arrangement with the builder/developer. The reason this sort of scam can be so convincing is that they are highly sophisticated, and involve a number of different people- the developer, the person selling you the property, and the person making the valuation. Each gets their cut of the profit, while you are left with a bad investment.  

There are scams to look out for at every step of the way, whether you are buying or selling a house, or trying to organize financing. If you are serious about property investments then one aspect of your research into the market should be to find out about the current scams that are going around so that you will not be fooled.

By making sure that you are as informed as possible about how the real estate market works, and that you understand the financial dealings which you get involved with and are careful when buying and selling properties you should be able to invest wisely in property. It is vital that you gather as much information as you can, about real estate in general and the specific investments that you are making, and that you clearly understand everything you are agreeing to and all contracts that you sign. If you are unsure about anything, then ask someone you trust to explain it to you, and make sure that you get professional advice whenever you need it- particularly on legal matters.

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