As home prices and interest rates drop, investment properties become more appealing for the shrewd investor. Property values have adjusteddown by25% up to 60% in some locations, since the peak of the market. Interest rates are holding steady for investor loans at 4.5% for a 30 year fixed mortgage. Here are some possible pitfalls that might derail those plans.
Plan As You Go: This is one of the biggest mistakes a first-time investor makes, they buy a house because they think they got a good deal and then try to figure out what to do. That philosophy is working backwards. The best approach, find a plan first, then find an investment property that fits that plan. Don’t find the strategy after you find your home.
Get Rich Quick Scheme: Real estate investment should be a long-term course. You have to be smart and understand your risk tolerance.. Normal appreciation will net about 2% to 3% per year over time. Buying any type of property in todays housing market is hard work and not a get rich quick scheme that might have worked in years past. Go in with the correct mind-set.
Preparation is vital: A big part of your success will depend on the preparation before purchase. Have the right professionals on your team. Build relationships with a real estate specialist, house inspector and lender. For the immediate and distant maintenance and remodeling, your team should include a roofing contractor, painter, heat/air company, lawn and cleaning service and a licensed contractor or handyman.
Paying Too Much: What have other investments been selling for in the local neighborhood. Due diligence is imperative when it comes to the cost you pay for your property. Remember the profit is locked in immediately, once the investor buys the property.
Do Your Home Work Or Fail: That was a life long lesson you learned in school, but it also applies to the investor. Educate yourself before you put your families financial security on the line. There are a number of self-help books on the subject that will give you valuable information. Consult with other investors, they are a great source for both the good and bad points of owning investment properties.
Miscalculating Expenses: Make sure you have sufficient cash flow for necessary repairs now and into the future. Over time the roof will need attention as well as the heat and air system. Allocate your budget and make sure these expenses are part of the equation or end up having your asset turn into a liability.
Purchasing In A Bad Location: Be prepared for fluctuation’s in the real estate market. Know what the vacancy rate is and has been in the community where the investment is located. College towns and large active downtown districts have been favorable because demand usually outweighs supply. Having a large influx of potential tenants will cut down losses and tackle unexpected situations like rental market slumps.
Screen Your Tenants: Tenants can lose their jobs and stop paying rent. Evicting tenants can take months and can be an expensive process. Screen your tenants very carefully or pay a property management company to do it for you.
Protect Your Assets: Every successful real estate investor should take time to protect their assets. Work with an attorney to incorporate your investment, using the most appropriate business entity. Hire a CPA that can show you how to legally maximize your deductions and have a greater after-tax profit. Please visit my website www.JohnnyBrooksHomes.com for helpful tips on buying or selling a home, scan my other informative blogs and easy access to view all local area homes for sale.