Most of the people buying or investing in real estate intend to do so to make profit. Property purchasing and real estate investment always deal with high-value transactions where you are required to chip in a good amount of money, besides the EMI instalments. Further, while buying a house, you need to do a lot of things right from the beginning. To name a few, you need to arrange enough money, look out for the ideal property, learn what is homeowners insurance, complete all the legal procedures, etc.
However, if you’re buying a house in order to rent it out, there are many other factors that play an important role before you make your purchase. For instance, if you don’t calculate the full cost of investment along with the homeowners insurance beforehand, you might fail to get the kind of returns you were expecting, or worse, you might also run at a loss. In order to make sure that you don’t face any loss while renting out a house you purchased or even wind up with an illiquid investment, here are 5 things you should avoid investing in:
- Location – Purchasing any real estate property will require you to choose a good location. Nonetheless, it does not have to be in a posh area. If you expect to purchase a house in some up-and-coming area of New York and still get a good amount of returns, you will first have to invest a good amount in the whole affair. If your ultimate goal is to rent out a house you own, settling down for a relatively mediocre location with cheaper real estate value is not a bad idea. Investing in a property solely because of its deluxe location is not a smart move. However, you need to make sure that the chosen location is in some safe neighbourhood.
- Garages – Investing in garages attached to houses for renting is a bad idea because most people looking to move into rented houses don’t require garages. Adding a garage would further make the list of potential purchasers scantier because having a garage means paying more and if the people willing to take your house for rent don’t own a car, they would automatically not want to pay an unnecessary charge. Besides, there is a totally different set of paperwork involved in getting an allowance to build a garage next to your house.
- Fixer-upper – It is always tempting to get a house at a bargained price and then put it out for rental purposes. However, if you are doing this for the first time, it is better to not do it at all. If you buy a property at a bargained rate, chances are that you will have to invest a lot into large-scale repairs and do damage control that will seem heavy on your pocket in the end, totally negating your intentions in the first place. Instead, aim for a house that is priced slightly below the regular market rates and needs very less amount of repairs.
- High-cost property – It is always difficult to get a high-cost property out for rent. Investing in a high-cost property can backfire because people looking for a rented house ideally don’t intend to live in a high-cost property, for example, a penthouse. Try investing in a medium-rated property with good investment policies. Always be clear about your final goal of getting good returns out of your investment.
- Property managers – You really will not require a property manager if you rent out a house you purchased solely for the same purpose. Property managers are an additional expense that you can curb down at the very beginning. Hiring a property manager will only reduce your profits. Property owners who rent out their own house mostly fix the damages by themselves to save money or hire someone on a contractual basis. Hiring a full-term property manager for the first house you ever rented out will not get enough returns to your investment.
These are the few tips we would like to give to new investors who are looking forward to investing in the real estate market. Of course, you will make mistakes at the beginning but as you get the hang of how the realm of real estate works, you will understand how to smartly invest into properties and get good returns.