Investing in real estate can be a lucrative move for the financially savvy, but for those that fail to do their homework, there is a risk of severe financial loss. Learn how you can be a part of the former group of investors, rather than the latter, by avoiding some of the most common real estate investment pitfalls. You shall also discover how an experienced attorney can help reduce the risk of complications in your next real estate transaction.
How Much Will It Cost?
Calculating the cost of a property can get a little complex, especially for the novice investor. That is because there is more to cost than the sale price, closing costs, and title fees. There could be zoning problems that need to be corrected before you can rent or sell the property, and distressed properties, which are common in the real estate investment sector, could have more damage than you initially thought. As such, investors are encouraged to perform their due diligence before purchasing an investment property, especially if it needs repairs.
How Will Location Impact Your ROI?
Location is everything, especially when it comes to investment property. Prime locations will typically cost more, but they tend to have a higher return-on-investment (ROI). In contrast, properties that are in sub-prime locations are more affordable, but they may have a lower ROI. Areas that are up-and-coming may have a lower ROI to start with, but they may provide you with long-term gains. You could also find yourself dealing with a property that is located in a distressed or declining area, and that might require you to loosen your renting requirements to obtain any sort of gain. In other words, choose your location wisely and always consider how the location could impact your ROI, both immediately and in the long-run.
Who Will Manage Your Property?
While some investors make great property managers, others lack the skills or temperament to deal with tenants and their potential issues. For example, an investor may have a great deal of compassion, so they may be willing to rent to a tenant based on circumstance, rather than their ability to pay. Sadly, this can place the investor at a serious risk for financial loss – and possibly even financial devastation if they manage several properties in the very same manner. If you fear you cannot manage your property effectively, or you would simply like to ensure you have more time to focus on your portfolio, you may want to consider hiring a property management company instead of handling everything on your own.
Are You Following the "Rules" of Investment?
Investment gurus have one hard and fast rule: never invest in a property that cannot make at least one percent of its cost in the course of a month. In short, if a home is costing you $250,000 to purchase and prepare for tenants, you need to be able to rent it out for at least $2,500 each month. If you cannot make this, or if the pricing is unreasonable for the area, it may be best to find another property. There are exceptions, of course, but investors are discouraged from making them without the guidance and advice of a seasoned professional.
Have You Accounted for the Unexpected?
Seasoned investors know that upfront expenses, such as repairs and closing costs, are sometimes just the beginning. There may be other unexpected expenses, such as taxes and insurance as well. Plan for them and you will be more likely to experience a hefty return on your investment, but fail to do so and you could lose a substantial amount on your next transaction.
Contact Our Skilled Wheaton Real Estate Attorneys
When you need protection in an investment transaction, Stock, Carlson, Oldfield & McGrath, LLC is the firm to call. Dedicated and experienced, our Wheaton real estate attorneys can assist you in performing your due diligence, and we can help ensure you have not missed any pertinent details. Schedule your personalized consultation to get started. Call 630-665-2500 today.