If you have recently purchased some real estate for investment purposes, you are in good company. Recent reports suggest that as many as 25% of these purchases are made by those who plan on using the property for investment purposes only!
Investing in real estate is always a smart decision and it can quite easily bring wealth your way. Although this sounds great, there are also pitfalls that many people fall into! What are the four dangers in flipping real estate and how can you prevent them?
1. Property Taxes
Keep the property for a few years and you may experience a surge in property taxes especially if your taxes are reevaluated during that time. Some hot real estate markets have seen taxes nearly double in just 5 or 6 years. Make sure that you keep your finances in check and organized to not let these property taxes sneak up on you all of a sudden.
2. Renovation Expenses
You may have purchased a “fixer-upper” at a bargain rate. Once your project is complete will you be able to recover the expenses and make a profit especially if the value of your renovated property is above those in your neighborhood? Besides, can you withstand a correction in real estate values?
3. Insurance and Mortgage Costs
You will pay more for homeowners insurance if you do not occupy the residence and you have tenants. If you are financing the property you know that your mortgage rate is higher as well.
4. Rental Pressures
A market saturated with rentals will mean that the rents you can charge will be less than what you had hoped to receive. In some markets, you are required to get special licensing to be a landlord. In other markets, the legal rights of tenants mean you could have a lengthy and expensive battle in ridding yourself of a bad tenant. Will the lower income levels coupled with the added expenses drag your investment down?
Many of these warnings are in regards to financial situations. Many of the time, people hold the misconception that things will remain the same and this is not always the case. If you rent the property, you may have to hire a maintenance team or purchase the parts to fix things yourself. Regardless, costs can add up and it’s important to keep track of these possibilities.
Of course, you can limit your risks (and costs) by doing the majority of the upgrades yourself, appealing excessive property tax increases, and finding for yourself a trusted and dependable tenant. It isn’t easy flipping a home, but with a lot of pluck and determination, it can result in strong profits for you.