Acquiring real estate for investment purposes can be a sound personal and business strategy. But what is involved?
This strategy is aimed at buying a property significantly under its fair market value (FMV) and rapidly selling it. This can involve "fixer-uppers", where the buyer may need to invest money in repairs to the property, or buying pre or post foreclosure properties where the cost of buying in and then selling the property leaves an attractive % of profit to the investor
If your looking for rental income, the SFR method may not be your answer and could be a big mistake, unless the investor plans on rapidly acquiring several properties to spread out the risk should the vacancy factor come into play
This aproach to rental income is the safer approach. The more units in the investor's portfolio, the less risk is involved should vacancy or bad tenant issues come into the picture. A first time investor should look at multi-family units (1-4 units)
10 Biggest Mistakes Of Novice Investors
Falling in love with the property - Stop thinking like a homeowner and start thinking like a business owner
Not performing your due diligence - Property inspection, area vacancy rates, average rents for area, etc.
Underestimating the home improvements - It will always take 3 times the money and twice as long as you estimate to get a unit ready to rent. Or is it twice the money and three time longer? Either way, build in a buffer
Thinking you'll get those low mortgage rates you see on TV - Those are for owner-occupied homes. Investment property is considered riskier and lenders will charge more in interest rates and points. Also, the chance of 100% financing is becoming extremely rare, so plan on having some cash for downpayment
Not prescreening tenants - When selecting renters, make them fill out an application and check their credit, employment and rental history before you take money from them. A few months vacancy while doing the right checks is better than having to evict a bad tenant who probably owes you a few months rent anyway
Breaking your own rules - When you start ignoring your own policies, you are headed for trouble. No pets means NO PETS. Don't let someone move in without a security deposit and don't ignore collecting late fees
Investing long-distance - Keep your rentals close to home unless you plan on visiting the area frequently. You will reduce profitability if you have someone else do repairs for you. Purchase a yearly service contract on each unit if you plan on being an absentee landlord
Paying too much for the property - Rental property owners should work off the 1% rule. That means that if you pay $100,000 for a unit, you need to collect $1,000 month in rent to pay all the bills and have some cash flow. Know what the rental market will bear
Not studying the competition - Units in the same neighborhood may rent faster then yours. Why? Does the competition have lower prices, washer & dryers in the units, lawn maintenance, trash pickup, etc.
Being underinsured - Insurance on rental property goes beyond insuring the building against fire or a hurricane. You need to look at your own coverage for liability. Don't set yourself up to be sued, but if it happens have adequate coverage
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