Top 4 Mistakes New Real Estate Investors Make When They Buy a Rental Property
If you’re thinking about investing in real estate for rental properties or you want to add to your current properties, you want to be smart about the choices you make. New investors have a tendency to make some common mistakes, and you’ll be ahead of the game if you learn from others’ mistakes.
1. Not Recognizing the Difference Between Cheap and Inexpensive
Most real estate investors look for inexpensive properties when purchasing them for rentals. However, the newbie often confuses cheap with inexpensive. A property listed below market value is a good buy if it has strong potential. On the other hand, it’s just cheap if there’s a lot of work involved to get it ready to rent out or if it’s located in a bad neighborhood or a high-crime area. A property that will be difficult to rent can turn into an expensive purchase even if the price was good.
2. Opting Out of an Inspection
While you may not actually choose to forego the inspection, you may not be part of the actual process. Even if you aren’t mechanically inclined, it’s still a good idea to be around when the inspector looks at the property you’re buying.
This is your opportunity to ask questions about all of the areas he’s inspecting. While you might overlook a few issues with your own home, you don’t want to end up sinking a lot of money into repairs for a rental property right away. You can ask the inspector about costs and options for repairs to help you determine if this property is a solid investment or one you should walk away from.
3. Buying in the Wrong Neighborhood
You will want to think ahead when you make an investment in real estate.. Think about what the neighborhood will look like in five or ten years. If it’s an up-and-coming area, even if it looks a bit neglected now, it will be a solid investment, especially if you decide to sell. On the other hand, if the area is continuing to fall down, you may end up with a property no one will rent and you can’t sell.
4. Not Knowing the Rental Potential
Not all good properties make good rental investments. You have to think of the area and how much rent you can command for your property. A downtown property close to the business district and nightlife will likely draw in plenty of renters at a good price.
On the flip side of the coin, a small house in a suburban neighborhood with families may not bring in too many renters. You may end up with high turnover if you do manage to rent it out, even more so if the neighbors have a negative attitude towards rental properties. It’s important to do a rent survey before you select a property to buy and consider the neighborhood for an indication of how easy it will be to find renters.
When looking at investment properties to add to your rental income, consider all of these mistakes that are common with new investors. Avoid them by thinking through all aspects of the property you’re purchasing. Learn how to identify a good buy for rental properties and avoid getting stuck with a property that fails to live up to its potential.
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