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.