Today we’ll be talking about mistakes that investors should avoid. The economy has been volatile for a few years. The stock market took a major nosedive, foreclosures were rampant and unemployment rose to all-time highs in some areas. However, the market has good opportunities and for some people, now is an excellent time to buy investment property due to the decline in housing prices. It can be easy to forget to watch for investment pitfalls, even though it’s a buyer’s market. If you are thinking about purchasing rental property, avoid the following mistakes.
Research And Education
Purchasing a rental property without educated research is a major misstep. Consult the professionals, including a knowledgeable real estate agent, your property manager, a reputable mortgage broker and other parties who can give you realistic values. Do your own research so you can ask intelligent questions and you’ll know when you’re receiving bad information. For example, consulting a real estate agent who doesn’t know the rental market is a disaster waiting to happen. It’s easy to project a positive return on paper while using inflated figures. Ask your property management company to investigate rents and expenses before you purchase the property.
Waiting for the market to bottom can cause missed opportunities. You can make intelligent investments in any market. Unless you have a crystal ball, it’s hard to tell when the market will rebound or bottom out. When prices start moving up, you can still purchase a good investment.
Long Term Planning
It’s not realistic to think you won’t hold onto a rental property as a long term investment. It’s possible to buy a property and flip it, but it often takes holding the property for 10 years or more to get real benefits. The yearly tax benefits while owning the property are a good reason to hold onto the home. Unless you reinvest profits from a short term rental, you might have tax consequences.
Expecting no maintenance or minimal maintenance is a mistake. Consider how much maintenance goes into your own residence, and you’ll realize rental property goes through the same wear. Even if you have the best tenant on the planet, you need to maintain the property or your investment will suffer. Remember this is normally a long term project, so your roof, fencing, paint and carpet will have their own lifespan and need budgeting. Consider how you will cover maintenance expenses and replacements.
Hobby Vs. Business
Not treating this as a business is the biggest mistake of all. Be realistic, not emotional. As with all businesses, there are ups and downs and accepting this makes a difference.