Six Mistakes Investors Make

Investing in real estate right now can be surprisingly profitable as rents are on the increase in many areas due to the number of people losing their homes to foreclosures or doing a Short Sale of their homes. 

Remember that owning rental property is time consuming, expensive, challenging, and many investors lose money. 

Mistake 1:  Confusing a cheap deal for a good deal – You can buy homes at a low price but that doesn’t mean you can rent them out.  They usually aren’t any more appealing to rents than they are to buyers.  Also less-desirable school districts may hamper renting your property. 

Mistake 2:  Overlooking key costs – Knowing potential rent is not enough.  You should also factor in closing costs 3-6%, costs to fix up the place and maintain it, and your holding costs.

 Mistake 3:  Forgetting that time is money – You lose money when your home is empty, whether you are trying to rent it, in between tenants or painting.  You may be better off accepting a lower rent than waiting for a higher-paying tenant. 

Mistake 4:  Assuming you will sit back and watch the rent roll in – You are a rent collector and sometimes tenants lose their jobs and stop paying rent.  Evicting them can take several weeks without rental income coming in. 

Mistake 5:  Underestimating repair costs – Carpet in rentals typically must be replaced every five years and you may have to repaint after every tenant.  The National Association of Residential Property Managers suggests setting aside six months of expenses so that you will have funds if a major repair is needed. 

Mistake 6:  Assuming that owning a rental is the same as owning a home – You might put up with flaws in a home that a renter won’t tolerate.  A property manager can handle most headaches, but you should expect to pay up to a month of rent for finding and screening tenants and up to 10% of the monthly rent for management fees.

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