Investing in real estate has risks that can derail the best-looking deals, so you need to make sure you are addressing the known pitfalls and doing the work to diminish the chances that something will go wrong with your purchase.
Financial sense
Rentals make sense if they are cash-flow positive and provide a fair rate of return on the invested equity. Investors should not purchase negative cash flow properties, period.
Buy a property in good shape
Forget the fixer-uppers: They almost always cost too much to repair. This may work for a construction contractor who is experienced in estimating the costs of repair, but for the average investor, chances are they will lose money.
Review title documents
All buyers should review the title insurance policy, schedule of exclusions, title abstract and a plat or survey of the property. Schedule an hour for your title insurance agent to go through all those items with you, in detail, so you can address any issues before you purchase. Significant issues are rare, but you have to address them before you close.
Property and liability insurance
Make sure to keep the proper insurance in place and for an appropriate amount, as needed for the specific property and your specific circumstances. You should talk with an insurance agent and discuss your complete financial and insurance picture so that if something happens — such as a fire, dog bite, flood or slip-and-fall — your insurance company will work with you to reduce the chances it would significantly impact your finances.
Manage rentals well
If your property is a rental, make sure to secure good tenants and keep them for as long as possible. Treat them well, keep your property in good shape, address issues and resolve them quickly. You’ll make the most money with the least hassle by treating your tenants the way you’d like to be treated.
Consider selling the property with owner financing
If you prefer not to be in the property management business, you could consider selling the property to a buyer that needs financing and can’t get it from the typical lenders. A buyer with a good down payment and a good income may have gotten denied for a loan from a traditional lender because of past credit issues. The income from the monthly payments provides you with a steady monthly income. It also give the buyer some time to work on his credit issues and possibly pay you off when he refinances with a traditional loan, which usually will have better terms.
So, if you want to make a better real estate investment, the areas above are good places to start.
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This information is intended to be used as a general guide. It is not intended to constitute legal advice and is not a substitute for the advice of an attorney. While every effort has been taken to present the information accurately, this document may not be infallible. No warranty is made that these materials are current, complete, accurate, or suitable for any particular purpose. You should seek advice from your attorney before proceeding with any real estate transaction.
Source(s):
1. How to Make a Better Real Estate Investment, N.D.,N.P., ZillowBlog.com, Retrieved 08/19/13.
