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Avoid the Pitfalls of Real Estate Investing


As surprising as it may seem, in some areas home inventories are growing smaller. Combined with low interest rates, this means that many prospective real estate investments are actually receiving multiple offers. For real estate investors who have not done their research; however, this could be a potential pitfall if they make the common mistake of assuming that every foreclosed, REO or short sale property will be a profitable real estate investment for them.

Even though it may appear as though a home could be a fantastic bargain that does not mean that it will necessarily be appropriate as a rental property. Unfortunately, far too many would-be investors are jumping in and timing the market correctly but snapping up the wrong properties. Consequently, some investors have discovered that the properties they purchased present either challenges that will need to be managed over the long-term or will not attract the types of tenants they are seeking.

One of the biggest mistakes that too many investors are making is assuming that just because a foreclosure is cheap, it will make a great investment and rental property. This can ultimately lead to a very expensive lesson that investors must learn the hard way.

Before you jump on the bandwagon and start snapping up a property that seems as though it would be a good deal, it is important to learn how you can avoid some of the most common mistakes that investors tend to make when purchasing investment properties.

First, make sure you take the time to do your research. Doing your homework includes making sure you have an idea of the long-term plans you intend for the property as well as the type of tenant you would like to attract to the property. You should also know what type of property that tenant will be looking for and the characteristics of the property that will meet their needs.

You should also spend some time studying the demographics of the local neighborhood. Many neighborhoods tend to attract the wrong types of tenants due to their affordability. If you want a property that will rent for under $1,000 per month then you will need tenants who earn at least double that amount, possibly triple that amount. Tenants earning around the $25,000 mark may have problems paying their bills, which could be a problem for you. One of the most common mistakes among investors is purchasing homes under the $100,000 mark. It might seem as though that is a great price for an investment property, but you must also consider the inherent issues that come along with such a property.

At the same time, avoid sitting on the fence and waiting for the market to drop to the bottom. By the time word gets around that the market really has hit bottom, interest rates and prices will already be moving upward. This is a crucial mistake that you cannot afford to make. If you wait too long you are likely to miss out on profitable opportunities. The time to make your move is right now, provided that you do so with caution. Look for long-term returns rather than short-term returns.

In order to maximize your opportunities as well as the chance for success with a rental property, your best bet is to look at homes that will rent for between $1,000 and $1,500 per month. This range typically attracts tenants who are financially stable, which means you should not have to worry about the rent checks coming in every month. Given the foreclosures that are still hindering the market, there are many people who are accustomed to owning a property but will not be in a position to purchase for quite some time. It is these individuals who often make the best tenants and will continue to serve as excellent tenants for several more years. Until such individuals, foreclosed owners, are able to build back their credit and begin purchasing home, you will be able to benefit from mid-end to high-end tenants.

Keep in mind that the nicer homes are always going to be the most attractive to renters and will be snapped up by tenants at faster rate than other properties. As a result, there is a tremendous demand for rental properties that are in the middle to upper income range. Smart investors know they need to look for bargains in this part of the market rather than trying to scoop up bargains under the $100,000 mark.


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