Common Mistakes When Investing In Real Estate
The real estate boom of the early 2000's has offered a wide variety of investment opportunities. These have provided large numbers of rookie investors with great tax benefits, positive cash flow and a great feeling of satisfaction. Now, the situation is a bit different, and that is mainly attributed to the ever rising interest rates. If a certain investor chooses to continue to operate in the real estate market, he/she needs to make sure to steer clear of many, potentially very costly mistakes.
Mistakes to avoid when investing in real estate
In order to keep up the pace with the real estate market, an investor needs to plan accordingly. Nowadays, the trend of quick turnarounds is all but over. A good investment needs to be considered long-term or mid-term. Of course, if there is a nice short-term profit, there will be no complaints. However, it is always better to do long-term planning.
2. The numbers
Whenever you plan to buy a real estate property from an investment holding or a professional seller, you need to review the numbers and all the little details of the deal very carefully. Regardless of how tempting the deal might look, you must check the numbers in regards to the contract features, such as the overall payment history, expenses, expected rents, existing deposits, HOA fees, and any future expansion plans and modifications. You need to check anything that can have a significant impact on your ROI (Return On Investment)
3. The insurance
Before agreeing to a deal, you must ensure that the object is properly insured. The last thing you will want is a total loss of the real estate property or some lawsuit based on various liability issues. Take your time to see if there are any pending cases that might threaten your investment in the future. Keep in mind that a good contract is supposed to protect you from anything that might have happened in the past, and ensure that the property is properly insured once there is a change in ownership.
4. Proper inspection
Many novice investors usually fail to adequately inspect a property before making a purchase. Avoid this mistake by conducting a thorough inspection of the object, regardless of its location. Never invest in something you haven't thoroughly inspected and verified. There are large numbers of those who have spent huge amounts of money on properties that only existed on paper. Of course, also check the condition of the property, so as to avoid spending thousands of dollars on necessary repairs.
5. Tenants and rents
Make sure the rents are at a current market level. They should never be at the lower or upper end of the market range. The last thing you'll want is to see tenants leave your property, just because they have found a much cheaper option. However, you also do not want to offer rock-bottom rents, because that will make your real estate business highly unprofitable. Always try to find a sweet spot. Also, try to avoid dealing with low-income parties, as that will only create all kinds of problems. No real estate owner wants to deal with overdue rents and parties who are known to have a tendency to cause all kinds of damages and other problems.