8 Mistakes That Real Estate Investors Should Avoid
The financial stakes are always high for real estate investors, any mistakes during a real estate transaction can prove costly. Dealing with the complexities of property deals, contracts, and regulations demands a diligent approach, which makes it advantageous for investors to seek legal guidance. Enlisting the services of a skilled real estate attorney is almost always a prudent step to protect your rights and interests.
Here are some of the key mistakes that real estate investors should avoid.
Paying Too Much for a Property
You find a property you love, but as it turns out, so do others. The price keeps climbing as you try to outbid them and now you are caught up in a bidding war. What happens in these situations is that, in the heat of the moment, you end up paying more than the property is actually worth. Remember, the goal is to invest wisely, not just to win the bid.
If you are buying a fixer-upper, make sure you get the property surveyed by an experienced home inspector and handyman beforehand. You do not want to find that it will take thousands of dollars more to spruce it up than you thought initially.
Not Choosing the Right Financing Options
There are many home loan options out there that come with irresistible features like interest-only payments, balloon payments, or negative amortization. These are specifically designed to help buyers purchase homes that might be out of reach with traditional 30-year mortgages. This is why the special terms these mortgages come with tend to seem very manageable at first.
Before you choose such an adjustable-rate mortgage (ARM) or interest-only loan, know that they are more exposed to risk. If interest rates increase, the monthly payments can become too high for you. Make sure you have a plan to handle the higher payments or switch to a fixed-rate mortgage if needed.
Not Accounting for All Costs
As a real estate investor, there is more to the costs than simply paying off your loan. There are ongoing expenses like maintaining the yard and keeping home appliances (like the washing machine, dryer, oven, HVAC and heating system) running smoothly. You might need to replace the roof or alter the structure of the property. Also think about the insurance and property taxes.
Before you buy, jot down all the monthly expenses you will have to manage, like utility bills and general upkeep. If you are planning to rent out the property, add up these mortgage and maintenance costs. This will help you calculate your return on investment (ROI), i.e., if the rent you will receive is enough to cover your mortgage and the costs of keeping the house in good shape.
Not Assessing the Tenants
When buying property to rent out, think about who will likely be renting from you: single professionals, young families, or college students. Families usually look for areas with low crime rates and good schools; single people might prioritize easy access to public transport and a lively local social scene. If you are considering a vacation rental, consider its proximity to popular spots like beaches or tourist attractions.
On that note, make sure to screen every tenant. They should be reliable with a good background. A tenant who has a history of not paying rent on time will likely continue that behavior with you too. This will not only mean lost income, but you could also get entangled in legal battles to evict them.
Not Having a Well-Thought-Out Investment Strategy
The purpose behind your investment process will determine the key decisions you make. For example, if you are investing to generate rental income and cash flow, you should look at properties in areas with high rental demand, such as near universities, business districts, or popular residential areas. The investment property must be appealing to your target tenant, be it a student or a family.
Not Researching the Local Market
Do not simply look at current prices or what the real estate industry has been doing recently, but understand how the economy in the area is doing. Are businesses thriving? Are new companies moving in? This matters because a strong economy means more jobs, and more jobs mean more people needing places to live. This demand can drive up property values and make it a good investment.
Not Considering the Legal Implications
Do you know the zoning laws in the area where you want to buy real estate? Zoning laws dictate what you can and cannot do with your property. If you buy an apartment building, planning to convert it into a commercial space, but it is zoned only for residential use, you are in for an unfavorable real estate deal. Another legal aspect is tenant-landlord laws, which vary from place to place. These laws cover everything from how much you can charge for a security deposit to the process of evicting a tenant. Not knowing these can lead to costly legal disputes.
Not Seeking Professional Advice
Legal guidance is critical for new real estate investors. But even if you have had successful real estate investments before, things might not go as seamlessly in a less hot real estate market. You should consult with a knowledgeable real estate agent, a home inspector, a handyman, an insurance agent, and above all, a seasoned real estate attorney who has experience with all types of property transactions.
These professionals can point out any issues with the property or the area around it. A lawyer might inform you about problems with the property's title or any rights of way that could cause issues later.
Get a Dedicated Real Estate Attorney on Your Side to Protect Your Investment
If you are considering a real estate transaction or need help with your real estate investment, consult with our skilled real estate attorney at Very Law. Give us a call at 412-430-0131 or fill out our online contact form to set up a consultation. We are ready to answer any questions you might have about successful real estate investing and will guide you through every step of the way with top legal advice and support.
Think you may have a case? Let’s talk.