property ideas real estates

One of the most common and interesting ways to invest your money is to buy real estate. Even given all the ups and downs in the last ten years, real estate still proves to be an interesting and steady investment in the long run. If you are considering buying real estate and renting it out, please learn from our experiences and avoid making one of the Five big mistakes when investing in rental property.

The Five BIG MISTAKES:

1. Investing with a mortgage instead of your own money

This is a very big mistake that is made quite often. If you are looking to invest in rental property, the best way is to do so with your own money. If you need a mortgage to buy the property, the Return on Investment will plummet.

In addition, mortgage providers often do not allow renting out a property to secure their collateral. When investing, it is always best to keep as much control as possible over the situation. Using your own money gives you this freedom. Make sure, however, you invest money that you do not (and will not) need for anything else in the future.

2. Investing in rental property in an unknown location

If you want to invest in rental property, you are better off to keep it local. Buying a property in your own city has many advantages.

When you buy in a know location, you know the quality of the neighborhoods, the plans for urban development, the ups and downs of the housing market and you know when an investment is a good deal.

Investing in a known location also makes maintaining the property easier. You probably are aware of the best places to find new tenants and practical issues (such as repairs) are arranged much easier because you have knowledge of businesses in the area that have a good reputation.

3. Buying a property that needs a lot of maintenance

This may sound like a no-brainer, but it is definitely a big mistake that is easily made. If you are planning to rent out the property, make sure you buy a low-maintenance house. This includes the exterior of the building as well as the interior.

Look for an idiot-proof house to make sure you don’t have tenants calling you constantly when things break and loosing the great ROI you thought the property would yield.

If you are looking for low maintenance, look for smaller properties that are for instance part of a bigger building. Apartments can be great, as long as there are no high service fees.

4. Not calculating your ROI beforehand

You invest in rental property to make a nice return on investment. This means that when you are considering investing, you need to calculate your return on investment (or ROI) beforehand.

What are all the costs associated with the property each year and what are the yields? Be as precise as possible and don’t forget to think about costs such as liability insurance and extra maintenance (things will probably break more than in your own house).

Be realistic about the possible earnings: there is a bandwidth and a maximum to what you can ask for rent in a certain location. Also, do not buy a property that is super expensive: it will kill your ROI instantly. We try to achieve a ROI of 10%. This means we will earn back the investment in 10 years.

5. Focusing solely on your ROI

Yes, your return on investment is important and you should make a detailed calculation for each property you are investigating. However, it is a risk to fixate on the ROI solely.

It is just as important to look at what you are left with as an income source below the line. Your ROI may be 20%, but if it only gives you a net revenue of 500 Dollars per month, it may not be worth the risk and the hustle. Be critical about the cash flow coming out of your investment and make sure it is aligned with the reason for investing in the rental property in the first place.