If you’re planning on buying up some property and renovating it to make a small profit, you’re in good company. Many Americans have started investing in real estate lately, especially after the rise in popularity of real estate and home improvement shows such as Fixer Upper and Property Brothers. But to truly make a decent amount of money investing in real estate, you need to know what common pitfalls to avoid.
Like any investment, investing in real estate involves spending quite a bit of time and money to sell your property for more than you paid for it. It can be very easy to underestimate the time and money required to fix up a house or an apartment to sell, and dealing with tenants is something that requires a bit of foresight and caution. If you follow these tips when investing in real estate, you’ll be sure to make a tidy profit:
Insist On A Home Inspection
A home inspection is integral to any real estate purchase you make whether you’re buying to sell or buying the dream home you’re going to move into. It may be tempting to forgo a professional home inspection in order to secure a deal, but a home inspection is necessary to uncover any repairs you’ll need to make. Without a home inspection you could end up buying a house that will cost substantially more to fix up than you’ve budgeted for.
This is the time for you to really pay close attention: walk through the home with the inspector and ask them questions from room to room. They are your go-to for information about what needs to be done and the approximate cost of doing so. If you have a detailed list of any and all repairs that need to be made, you have the negotiating potential to get the seller to help cover some of the cost.
Create A Thorough Estimate Of Any And All Costs
The worst mistake you can make when investing in real estate is taking on a property that costs you more than it makes you. Before purchasing a piece of real estate you need to take into account things like mortgage payments, insurance, taxes, and estimated repair and maintenance costs and compare them to the amount you stand to make selling or renting the place.
If you buy a property that requires massive repairs in an area with low rental prices, you’re not going to make enough money in rent to recoup your losses, let alone make any money. Don’t forget to leave room for unforeseen expenses such as vacancies in rent or replacing the water heater, which can sneak up on you and make a huge dent in your profit.
Thoroughly Vet Your Tenants
If you’re planning on renting out your real estate, you haveto be very strict about who you rent to. Nightmare tenants are everywhere and it can be very difficult to spot them ahead of time. Always run credit and criminal background checks on your prospective tenants, and be sure to follow up on the references provided.
If something feels off about a tenant, go with that feeling. You’d rather wait a little longer to find someone you can trust to rent to than rent to someone who will damage your property and make you take him or her through a brutal and endless eviction process. Watch out for tenants who want to move in right away or pay upfront for a year, as these are usually potentially warning signs of unreliable tenants.
Put Money Away For Unanticipated Expenses
Real estate can be unpredictable, and things go wrong all the time. Water heaters break down, mold is discovered in the walls, the sewage tank needs to be replaced; any number of things can happen that will require an immediate fix. If you get stuck with a bill for repairs that you can’t afford, you may end up losing whatever cash you’ve invested in the property.
Setting aside a portion of your earnings every year can help protect you against unforeseen hiccups. If you’ve got a bit of money tucked away before you first make the purchase, this an allow you to rest easy knowing that your investment will never put you in any financial danger. Investing in real estate is supposed to increase your finances, not ruin them; and if you do it smartly, it will.
Consider Buying A Duplex
Buying a duplex with the intention of living in one half and renting out the other can be a great way to both find yourself a place to live and make a profit in real estate. Buying rental property that you’ll live in yourself allows you to take out an FHA loan with a low down payment. When it comes time to file taxes, it also allows you to write off certain repairs to your home as business expenses since being a landlord is a business.
Living next door to your tenant may seem weird, but it allows you to keep a closer eye on the property and reduces the likelihood that anyone will move in who isn’t on their best behavior. On the other hand, you may find that living next door to your tenant causes you to be more available for repairs and calls than you would like. Set boundaries with your tenant about your hours of availability and ensure you’re ready to be a landlord. If you’ve got what it takes to manage a property, you can make renting a duplex work beautifully.
If you’re looking to successfully invest in real estate you need to have goals. Research the market and be realistic about what you’re looking to achieve. If you go into investing with a plan and the means to achieve that plan, you can make a massive profit. Just remember these tips and do your due diligence and you can avoid the mistakes that most people who invest in real estate make.