Real estate investing is attractive as property values are increasing, yet remain substantially less than their 2006 peak in many parts of the country.
Couple affordable prices and mortgage interest rates that are still quite low by historical standards and real estate investing can be an attractive investment option for many entrepreneurial Americans. However, if you are thinking about joining the landlord throng, it’s important to avoid these costly “newbie” mistakes.
Low-Ball Offers
Flattery may not get you everywhere, but insults will get you nowhere, so don’t insult the seller of the property you’re considering with a low-ball offer. Instead, base your bid on the true market value of the home. You can easily find this through evaluation of comparable local property sales. Then make a reasonable offer that shows you are serious about buying the property. Doing so will give you a leg up over the bids of other interested parties.
Hypothetical Financing
You may believe your income and assets are adequate to support a real estate investment, but the actual determination is up to your mortgage lender—so don’t go shopping without one. At least, you should ask for a pre-qualification before you begin looking at properties. This will give you an idea of how much you can afford as well as help you avoid wasting time looking at homes beyond your price range.
Better still, ask your lender to pre-approve you for an investment loan. You’ll need to complete a mortgage application and undergo a financial evaluation and credit check, which may require a fee and will take some time, but you’ll learn the real amount the bank is willing to lend, the interest rate tied to that amount, and receive a conditional commitment letter. This document can be invaluable when closing a sale, as you can prove you’re pre-approved and will complete the transaction.
Hidden Costs
What you see may not be what you get when you’re making a real estate purchase. You must look behind the walls, above the ceilings, and under the floors to get a clear picture. A property that looks perfect on the surface may have major—and costly—flaws lurking just beneath. Fortunately, enlisting the services of qualified property inspectors can help you stay away from buying a lemon. The last thing you want to face is a huge repair bill early on that will cause you to dip into personal savings.
Property Management
Being a good landlord requires a hands-on approach. You are responsible for collecting rent from your tenants. You must also respond to their repair requests promptly. And you must make sure the property meets health and safety codes, as well as abide by federal and state landlord/tenant laws. This requires 24/7 availability—and that’s something many of us just don’t have.
Fortunately, you can use the help of a professional property management company to shoulder much of this burden. Make sure you include their fees when estimating a property’s potential profitability.
Going It Alone
While you’ll find a plethora of real estate investment information online, and countless numbers of books to read on the subject, seasoned investors recognize the value of a trusted realtor. Not only will a real estate agent save you time—doing the legwork to search out available properties in your price range—but they can also tell you fair market value and the best neighborhoods for maximizing your rental income opportunities.
If you don’t yet have a Real Estate professional as a part of your investing team, check out Real Estate Investing: Find a Realtor Partner to help you get started.
