The Real estate boom of the late 1990’s and early 2000’s has offered great investment opportunities. These investments in real estate have provided many novice investors with positive cash flow, great tax benefits, and the satisfaction of making an impact to their lives. Now with the interest rates going up the market conditions will change. If an investor continues to work with real estate he or she has to make sure to avoid some costly mistakes. Here is a list of some mistakes an investor can make and how to avoid them.
Time: Higher interest rates slow down the market. An investor will have to plan accordingly. The times of quick turnarounds are gone for a while. An investment should be considered mid-term to long-term. Of course if an investment turns a nice profit in short-term nobody will complain, but the actual planning should be made for the long-term.
The Number: If buying a real estate property from a professional seller or investment holding a private investor needs to review the numbers of the deal very carefully. No matter how tempting the deal looks like an investor should be checking the numbers for the following items very carefully: expected rents, overall payment history, taxes, expenses, HOA fees, existing deposits, and future modifications or expansion plans. Anything that has significant impact on the ROI (return on investment) needs to be checked and reviewed.
Inspection: A real estate investor should always inspect the real estate object no matter where it is located. Only what has been seen and verified should be invested in. Too many people already spent money on objects that did only exist on paper. Secondly ?an investor needs to see for himself what the condition of the real estate object is. Failure to do so can cost the investor thousands of dollars.
Insurance: Is the object insured properly? The last thing an investor is looking for is a total loss of the real estate object or a lawsuit based on some liability issue. Are any pending cases out there that threaten the investment later on down the road? A good contract will protect the investor from anything that happened in the past and will make sure that the real estate object is insured when ownership changes.
Rent and Tenants: Rents should be market level. Rents should not be at the upper or lower end of the market range. An investor does not want to have to deal with tenants leaving like the flies as soon as they see a comparable object for a much lower price. An investor also does not want to attract the bottom end of people looking to rent into an object purchased. Dealing with low-income parties of our society is accompanied by different problems. The investor does not want the tenants to run down the place and turn it into a piece of junk. We do not want to judge people based on their standing in society, but from experience a real estate object is treated better by tenants of the middle class.
Re-Invest: If the real estate investment is cash-flow positive all the expandable cash should be applied towards the loans and mortgages that are on the investment. The best real estate investments an investor can make are those that equity available or are completely clear of any liens.
Investing in real estate looks easy on a first look, but the experienced investor knows that there is no perfect investment without problems. Act accordingly.
About the Author
Christoph Puetz is a successful entrepreneur and international book author. Christoph lives in Highlands Ranch, Colorado. One of the websites he maintains can be found at Restless Legs.