Mistakes to Avoid when Buying or Rental Property
If you are looking to invest in a vacation? With the housing market in the dumps, many entrepreneurs looking to buy cheap rent. Indeed, in this market, tight credit, if you have cash available, you can pick up a small house or even a duplex at a decent price, you can rent.
However, for those of you looking to jump for the first time, you must understand the risks of owning a rental. This is a true friend Jay knows that covers some of the mistakes that many novice investors make horror story of my good rental. This is not to scare you. However, it is intended to inform you about the risks with the intention of making a smart investor. If you know what to look for, you can avoid these mistakes that made my friend.
In late 2004, Jay was desperate to get into the real estate game. I had read about real estate investment in the last year and was ready to go and start. As we all remember, was the height of the real estate market.
However, for those of you looking to jump for the first time, you must understand the risks of owning a rental. This is a true friend Jay knows that covers some of the mistakes that many novice investors make horror story of my good rental. This is not to scare you. However, it is intended to inform you about the risks with the intention of making a smart investor. If you know what to look for, you can avoid these mistakes that made my friend.
In late 2004, Jay was desperate to get into the real estate game. I had read about real estate investment in the last year and was ready to go and start. As we all remember, was the height of the real estate market.
Mistake ( 1 ):
- Do not choose tenants carefully. It is imperative that steps are taken to protect your investment by paying attention during the hiring process. While
you must comply with the laws of landlord / tenant in its
anti-discrimination, you have the right to require a good credit history
and rental references.The inspection report indicates that the repairs were necessary for roofing, siding and furnace. However, my friend assumes that none of these elements was urgent and would be able to take care of them later down the road. In addition, the owner sold "as is" no negotiations. One day after closing, Jay received a call from a tenant in a panic saying that your oven is dead. The average estimate of HVAC contractors to replace the furnace is $ 3,000.
Mistake( 2 ) and ( 3 ):
- Allow the seller to make all decisions in the
negotiations and not be educated by the high cost of some repairs. Make sure you know what are the typical costs and if you can afford it. Never pay full price for the property has deferred maintenance. Remember you can always walk if the seller is willing to work with you, if the market is high or low.The ownership of Jay and the adjacent triplex used to be on a parcel tax. Before the sale, the former owner divided the property, which is more common than people realize multifamily properties. Neighborhood with an easement granted to the adjacent triplex was recorded with the county. The easement is for the use of parking. Jay and lot owner is responsible for their maintenance (keeping clear the snow and ice in winter and fixing potholes). However, the adjacent landowner and his tenants free use of the land and tenants Jay often struggle for a place to park. No
maintenance of the common elements of the contract or covenants,
conditions and restrictions (CC & Rs) in place governing the use of
the parcel. There
are no restrictions on the shelves of tenants, is synonymous with
clients or maintenance required contributions for adjacent lot. Jay has all the responsibility without anything in return.
Mistake ( 4 ):
- Not due diligence in the special conditions of the property. Each
time you find a property that has been subdivided into an adjacent
property, or any property or equipment shares common characteristics, to
ensure that maintenance of the common areas necessary agreements are in
place before the sale. Ask the seller to provide all documents and agreements should not have been recorded and carefully inspect the report title.In the fourth year of ownership, the property does not charge flow. There are many turnovers housing, rents are difficult to maintain and reserves are depleted. Jay also thought I would be able to manage the property yourself to save money. Shortly
after the purchase, he soon realized that he had to hire a manager to
collect rent and eviction process for tenants who do not pay. Management
fees significantly eat into their monthly rental collections and Jay is
out of pocket to cover part of the mortgage and property taxes.
Mistake( 5 ):
- No analysis of projected cash flows of the property. You can avoid paying too much for creating a proforma adequate cash flow. When
you buy an income property, you should analyze income and expenses of
the property from the actual data provided by the seller, and then make
adjustments to take into account the loss of vacancies and potential
credit repair. You
must also take into account the management fee, because if you're new
at this, chances are you're not ready to be a property manager. If rents are not sufficient to cover these expenses, ask yourself if you are really willing to pay the bill every month.There is one last error that Jay has done and that is what has caught much in this crisis.
Mistake ( 6 ):
- Taking the wrong mortgage for investment. Get
adequate funding is so important to any investment you are considering,
whether it is an investment in real estate or a new business. The issue is larger, then this article may be covered. Furthermore, very few innovative financing options are dangerous these days. However, obtaining financing is crucial to your cash flow and stability of your investment.***Jay still struggling to dig its way out of your investment. He appears as a short sale for $ 49,000 less than they paid for it. He had already lost thousands of dollars in repairs, legal fees and lost rents. If this is the case, is likely to sell another hit $ 20,000 to $ 30,000. It
would then be facing a potential deficit judgment if the lender decides
to sue you for the difference between the outstanding loan balance and
the sale. At a minimum, you should expect to pay taxes on the "gain", the amount remitted by the lender in a short sale.When
Jay heard his friend speak to benefit from low prices and jump into the
game, you will be invited to enjoy a coffee or a beer to share their
experiences in hopes of discouraging. My hope is, however, not prevent, but we urge anyone considering buying a rental caution and perform due diligence. Familiar with landlord / tenant state laws, property management companies and research to know what cash flow you can expect. Holiday apartment can be a great investment and good way to get into the property set. Make sure you do not pass after the first roll of the dice.
