Common Mistakes Investors Make

by on October 18, 2011

There’s an old quote that I am reminded of as I write this post, “Failing to Plan is Planning to Fail!” (by Ron Watmough, in the Small Business section of the Canadian newspaper The Lethbridge Herald, May 1979).

The fact of the matter is that one should ‘know before they go’ when it comes to real estate investing. Here are some things to consider:

  • Investing in real estate right now can be profitable, if everything goes as planned.  Rents are increasing in many areas, and more properties may be coming on the market.
  • Last month, the Obama administration asked for proposals on how to convert at least some of Fannie Mae’s and Freddie Mac’s inventories of foreclosed homes into affordable rentals.
  • Traditionally, investors rented out properties for 1 percent of the purchase price per month.  However, according to one property management firm, today, some investors are receiving as much as 2 percent of the purchase price.
  • While it may be true that in some areas home prices are relatively low, that doesn’t mean the property can be rented out.  Homes in deserted subdivisions aren’t any more appealing to renters than they are to buyers.  The same is true for less-attractive properties or those in less-desirable school districts.
  • Prior to purchasing a property, investors should also factor in closing costs of 3 percent to 6 percent, the costs to fix up the place and maintain it, and the holding costs.
  • Investors become landlords, and as such, need to keep in mind that, just like homeowners, tenants may not always be able to pay rent.  Evicting tenants can take several weeks.
  • It’s also important to remember that owning a rental is not the same as owning a home.  An owner may put up with flaws in a home that a renter wouldn’t tolerate.  Additionally, many states and communities have strict laws for landlords, even for those who own only one property.

Hopefully the above tips give you a good basic list of things to consider when it comes to purchasing an investment property. Please do not allow this list to discourage you all together. The fact of the matter is that there are some great deals out there and some of them require little or no effort to get them in to shape to be a great rental property.

Call me to today at 408-839-2125 and I will arrange a private showing of a few that I have found that I think are good deals.

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