Planning to purchase your first investment property? Caution and patience can keep you from making big mistakes. Listen to the advice of your agent and consider all the possible factors that go into making a good investment decision to prevent you from experiencing the many potential pitfalls that can turn your investment into more of a money pit.
Here is some advice to help you avoid some of the most common mistakes that first-time real estate investors make.
1. Don't overpay for the property thinking that you will make up for it on a sale down the road. Savvy investors know that you make money in real estate on the buy, and not on the sell. You should be patient and wait for a property you can buy for the right price and terms today.
2. Remove your emotions from your decision making process. Buyers who are purchasing homes to live in make emotional decisions. As a buyer of investment properties, you need to be emotionally detached from your investments and base your decisions on the financial factors of the property and your long-term investment goals.
3. Be sure your deposit is refundable based on due diligence contingencies, and that the language in the contract states that deadlines can be extended for items that are beyond your control. It's important to meet all the deadlines in the contract, but if an extension of a deadline becomes necessary, get the deadlines extended in writing.
4. Learn as much as you can about the property before purchasing. You should have a title company prepare a preliminary title report to reveal any significant hidden costs associated with clearing liens or encumbrances, or any marketability title issues.
5. Don't underestimate the property expenses. Typical expenses you must calculate include your mortgage payment, property insurance, real estate taxes, vacancy, maintenance, utilities, and management. If you will manage your own properties, add the value of your time to the expenses.
6. Prepare a realistic budget for repairs and rehabbing. If you are purchasing an older property, repairs almost always cost more than originally estimated, especially if you're doing an extensive rehab. A good rule of thumb is to add 15-20% to the original budget for repairs of defects that are revealed once the work has begun.
There is much to know to be a successful real estate investor. Find yourself a good agent with experience helping investors with the property types you have chosen for your investment strategy. The knowledge and experience your agent brings to the transaction is invaluable.
Contact us to find the perfect agent for your unique situation.