Whereas purchasing the right investment property can be a long-term boon to your finances, purchasing the wrong one is liable to leave you suffering from an acute case of buyer’s remorse. Considering how much capital is in play with most investment properties, you’d do well to avoid making such large purchases in haste. So, before committing to purchase your first investment property, make a point of doing your homework and steering clear of the following missteps.
Recognize the Importance of Location
When it comes to investing in properties, a few factors are as important as location. Since the location of a property plays a significant role in determining its overall profitability, you’d be wise to engage in some research before proceeding to put down an offer. By looking closely at an area’s population size, rate of growth, local economy, home prices, and rental rates, you can get a clear picture of how much demand for housing that area has. Needless to say, areas in which housing is in high demand tend to have higher property values and rent prices than areas where demand is on the wane. So, if you’re looking to turn an investment property into a rental, this is worth taking into consideration.
Given how important location is to real estate, investors who are limiting themselves to properties in their respective locales may want to reconsider this approach. After all, if you live in an area in which demand for housing is low to nonexistent, an investment property may not be the wisest use of capital.
Conversely, branching out into other cities, towns and states can expand your options exponentially and increase your chances of making a profitable investment. So, before beginning your real estate journey, you may want to research the best cities to invest in real estate.
Know the Condition of the Property
One of the best ways to prevent yourself from purchasing the wrong investment property is to insist that a professional inspection take place. No matter how flawless you think a property is, there could be serious problems lurking beneath the surface – problems that non-professionals are unlikely to spot. So, even if you’ve personally gone over the property with a fine-toothed comb, it’s important to understand that you aren’t a certified inspector and are therefore likely to miss certain problems. Furthermore, without a professional inspection, you may find it impossible to purchase insurance for the property.
Regardless of how forcefully a seller pushes back against the idea of an inspection property, just remember that as a buyer, a formal inspection only stands to help you. For example, if an inspector uncovers problems that you hadn’t been made aware of – or problems that the seller never knew about – you may find yourself imbued with enhanced bargaining power. Furthermore, if the results of an inspection reveal the presence of problems that are massive in scope and exorbitantly expensive to address, you may ultimately deem a property to be unworthy of your time, effort, and money.
Work with Licensed and Insured Contractors
If your first investment property requires any repairs or renovations, take care to work exclusively with contractors who are licensed and insured. As a cost-cutting measure, some investors opt to hire contractors who lack both licensing and insurance. Since they tend to charge comparatively lower rates, it’s easy to see why working with unlicensed contractors would strike fledgling investors as a financially savvy move. However, doing so can prove far more draining on your resources than doing business with licensed contractors.
Whereas licensed contractors have an obligation to maintain a certain level of honesty and professionalism, unlicensed contractors are bound by no such rules. As such, they have very little incentive to be upfront with clients, guarantee their work or stick with jobs until they’re finished. Furthermore, if a contractor who lacks proper insurance is injured in the course of working for you, you may find yourself shelling out a small fortune to cover their medical costs.
Few decisions can facilitate a more serious case of buyer’s remorse than purchasing the wrong investment property. Although smart real estate investments can generate massive returns, it’s important to understand that not every property you come across is going to prove profitable. Fortunately, preventing yourself from making unwise property investments is easier than you may think. So, if you’re looking to minimize your chances of making an investment you’ll come to regret, simply put the tips outlined above to practical use.
Monti is living in Arizona with his father. He’s doing his studies in business. Monti loves to research and write. It has been a year of doing so.