If you are investing in real estate or plan to, this story provides some valuable lessons. This isn't someone just starting their foray into real estate investing or someone jumping on the foreclosure bandwagon. This comes from my personal experience. As a real estate investor for 30 years, I've seen my share of real estate cycles, but nothing compares to what we're experiencing today. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay I recently had an exchange on a real estate investment that I need to make to continue deferring the tax. With a standard 1031 exchange, you have 45 days to find a replacement property and 180 days to close on it. However, my exchange is not a typical 1031 exchange. It is from an insurance payment on a property that was part of an older exchange. This property had a sinkhole and because of that the insurance company no longer wanted to insure the property, so they paid me the fair market value of the property, which at the time was higher than it is today. I paid off my loan with the proceeds, then resold the property "as is," full disclosure to a nice couple who probably would never otherwise have been able to afford to live in the community where the property was located. We finalized the closing at a local attorney's office, as I did not want any mistakes in the sale of this property. For those of you who are unfamiliar with trades, since this was an insurance payout, you are given more time to reinvest. If I don't reinvest the profit dollars and my basis from this insurance exchange, I will have to pay taxes. Trades are tax deferred until you stop making them. You then owe the tax that goes back to your basis in the original exchange. In other words, I would have to invest more money than I would have received from this insurance benefit. Normally, it wouldn't be that difficult to get another property. However, due to current market conditions, it is not just a matter of finding the right property, but also of obtaining financing. Financing in today's climate is quite challenging, with lenders not lending and high lending rates for investors. Even if you can get a loan, the sheer number of foreclosures and short sale properties out there is overwhelming not only to lenders (who have been in arrears for at least two months) but also to us investors. Not to be discouraged, I decided to see how things really were in a market that I know and understand but in which I have not invested lately. I also thought that if necessary, I could find the money from other "financial friends". I have been a real estate investor for several years and have encountered many resources in the industry, so I wasn't worried. With my strategy in place, I took myself real estate shopping in Florida. I know, some people go to sunbathe, but since Florida is on sale and I love shopping, I headed south. Before I left for Florida, I looked at dozens of foreclosure sites, did cost of living studies; I researched education, arts, crime, and other statistics I felt were necessary to identify communities where I might have an interest in investing in real estate before leaving for Florida. I had 3 goals for my real estate tour. Must have cash flow The property must generate positive cash flow. If I put 10% down how much will I earn each month to cover the 10% down payment? How long will it take to get mine backmoney? Is there enough positive cash flow to offset any emergencies, vacancies or other surprises? I expect positive cash flow on my investment. Reinvest the profit I needed to be able to reinvest the profit from the exchange.Newer CommunitiesMy investment practice is to be able to invest in newer family communities where people want to live. Is there a pride of ownership in the community? Are there services such as shops and schools nearby? The Interstate is close but not right in your back yard? I read with interest that Florida is for sale. Now I needed to see for myself if the sale is like a promotional sale where the retailer advertises a sale but in reality there isn't a big deal, or are we talking about SALE! Once I arrived in Florida and began my tour, I quickly learned one thing that every real estate investor, experienced or otherwise, should know. If you think you can buy property on the Internet from these fancy websites that have instant quotes among other frills, FORGET IT! You cannot try to purchase something that is not seen on the site. Even if you have a trusted person in an area, you want to invest in trust but verify. Get on the plane, the car, the bus and find out for yourself what you are buying or stay out of this market! I found that in overbuilt communities, tons of homes are empty and property values ​​in the communities are well below 50% of their 2007 high. I visited three communities on my trip; one area was so bad that I was convinced that there were more empty houses than occupied ones! I also learned some things about Florida real estate that I hadn't known before. Drywall Problems Everyone was talking about lawsuits from homeowners, builders, and previous owners over poorly constructed homes with drywall problems. Apparently some neighborhoods in the developments I was visiting are experiencing environmental hazards due to drywall that has not been cured properly. So not only do I need home inspections for the structure itself, but I also need an additional inspection for a new problem on homes built from 2004 to present. Excessive Speculation There is more than one reason why property is for sale in Florida. Many areas I visited had properties that investors bought through speculation. Once upside down, these investors walked away from the property. There are entire communities vacant due to poor decisions by investors in the recent past and now the communities are in various stages of completion. As for me, I'm not interested in acquiring property in areas where no one wants to live. HOA Fees Many new communities have HOA (homeowners association fees) agreements and fees that are outrageous. In one community I would have to pay almost $200 a month just to a community association, which would impact my cash flow. Furthermore, if there are enough foreclosures, short sales, or other distressed properties, who is paying the HOA dues on all these problem properties, and is the community able to keep up with the maintenance paid for by these fees? I must have looked at 3 dozen short sales or foreclosures before I found one I was ready to make an offer on. It turned out to be a property where the borrower had no taxes and insurance in an escrow account paid by the lender, so he fell behind on taxes and insurance 3 years late. The tax lien was sold as a certificate to an investor and time was running out. The property had to be sold and the deal closed.