Pitfall Number 1: Don’t Overpay!

The whole point in investing is to find properties that are a great bargain. How does one find out what is undervalued versus overvalued? Without getting into technical details, the bottom line is you need experience and/or good advice. Yes much like shopping for anything else, real estate is essentially one of the highest ticket items in the shopping center of life. It’s advisable to stick with one market as a starting point, perhaps your favorite Caribbean vacation destination, since you may be most familiar with real estate and possibilities on that island. Through your experience and asking the right questions, you will eventually have a feel for the pulse of the market you are looking at, and of course identify what is considered a good buy.

Pitfall Number 2: Know the Market

Yes, you are actually going to have to do more work! This part is really common sense though, but executing it is where the beauty and the payoff comes in. How do you make money in real estate? The most basic way is to buy low and sell high, or buy in vacation hotspots and rent at attractive prices.

So from the first step, you have identified general trends in the value of homes, and are pretty good at spotting a great value.  This is especially true if you buy pre-construction properties in emerging markets. Assuming you acquire that low priced pre-construction vacation home, you may want to profit from it by selling it off to someone else for a higher price when construction is fully completed.

How can you do this? Well there are many ways. For one, most markets appreciate in value over time so if you want a longer term approach that will work. Making upgrades to the property will automatically raise the price of the home as well. Think in terms of what the market wants, not what you personally want. You aren’t the one buying it; you are trying to sell it to someone else for a higher price than what you bought it for.

Pitfall Number 3: Know Your Budget

It may be a fine philosophy to go through life on a whim, but real estate is serious business, and thus diligent financial planning and budgeting is critical to your success. Don’t worry,  you don’t need to be a finance geek, however you need to be disciplined and know your budget from the onset, or you may get in too deep way over your head and run into financial shipwreck.

Be realistic about your current financial situation and your future goals. Don’t get greedy…many small steps will get you to the same destination, as a few big ones.  Only thing, you will be a lot more wealthy once you get there.