Investing in anything can be risky, even real estate. Many people consider real estate to be one of the less risky investments, but that isn’t always the case. If you invest in a property and later find out that it needs a lot of repairs or that you can’t get the amount of rent each month that you originally thought you could because the property the neighborhood sits in isn’t as great as you thought it was, you could end up losing a lot of money. Use these tips to minimize your overall risks when investing in real estate.
Hire an Independent Engineering Consultant
Before making an offer on the home, hire an independent engineering consultant to assess the home. Engineering consultants inspect the home’s foundation and structure to make sure there isn’t anything majorly wrong with the house. While hiring an independent consultant is an added cost, it could save you a lot of time, money, and stress in the long run.
Have the Home Inspected from Top to Bottom
In addition to engineering consultants, you should bring in professionals to inspect the most important parts of the home. Have the roof, windows, basement, and attic all inspected, as well as the home’s heating, cooling, and ventilation system and all of the plumbing. If the house has a septic tank, you should also have it inspected for leaks. All of these items could cost you a small fortune to fix, and you need to know exactly what you’re getting into before you purchase an investment property.
Estimate the Cash Flow
A lot of money goes into rental properties, so before you make a final deal, you need to estimate the cash flow. This means you need to calculate the total cost of the mortgage, insurance, and taxes for the month. Then, add a buffer for any repairs you may need to make, any time the house may sit empty, the cost of credit and background checks, and any unforeseen costs such as lawyer fees, eviction costs, and property clean up after the tenants move out. Then, subtract that amount from the amount of rent you plan to collect each month on the property. This should give you a good estimate of your monthly cash flow from the property. Properties should have a cash flow of several hundred per month or several thousand per year for the investment to be worth it.
Research the Area
It doesn’t matter whether you plan to flip the property or rent the home out, you need to do your best to research the neighborhood as thoroughly as possible. Look at homes that have recently sold in the area to determine the fair market value of the house, also take some time to research the amount of rent people typically pay to live in that area. You should also look at crime statistics and research the local school to try to pinpoint anything that may cause you to get less money on the sale of the property or a lower monthly rent amount that you want.
Explore the Neighborhood
When you’re buying a home that you plan to rent or resell, it’s important to know as much about the area as possible, so park your car and get out and walk the neighborhood. Stop to talk to any neighbors you see outside. Find out what they like about living in the neighborhood, as well as what they hate. Determine what type of people live in the area. Is it mostly seniors who have owned their homes for years or is the neighborhood a hot spot for 20 somethings? The type of people already living in the neighborhood could determine what type of renters you attract. For example, if the neighborhood is home to a younger crowd who likes to party on the weekends, it isn’t likely that a family with young children will want to rent your home.
Purchasing a rental property may sound like a great idea before you actually do it. Take the time to run the numbers, have the home inspected, and thoroughly research the area before you buy so that you avoid major issues in the future.