Investing in real estate can be a smart move, but only if you make the right choices. Real estate investments can be real winners, or real losers, depending on the properties you pick and how you manage your holdings. Knowing what to look for and examining your financial situation carefully can help you maximize your profits while minimizing any hassles.
Use an Attorney
No matter what type of investment property you buy, always use an attorney when making the deal. A good real estate attorney can help you with everything from determining a fair offer price to writing up the rental contracts. An attorney will also be able to ferret out any liens, back taxes or other encumbrances, items you might miss if you try to perform the transaction on your own.
Run the Numbers
One mistake many real estate investors make is assuming that the property will always have a tenant. While in a perfect world the apartment building you buy will always contain paying tenants, the reality is rarely this simple. When evaluating a rental property, you need to run the numbers both with and without tenants. If you find that you will be unable to make the mortgage payment if the property sits empty for even a month or two, you might be stretching yourself too thin.
Before you buy a piece of investment property, it is also a good idea to look at vacancy rates in the area. If you are buying in an area with high vacancy rates, it will be more difficult to rent the property, and you stand a greater chance of having the property sit empty. If the vacancy rates are low, there is a greater likelihood that you will be able to find new tenants quickly.
Consider the Neighborhood
One of the most important things for real estate investors to look at is the nature of the neighborhood. The type of neighborhood where the property is located will play a role in everything from the amount of rent that can be charged to the potential for appreciation and resale value. If the neighborhood has been changing for the better, investing there can be a smart move, but if the neighborhood is in decline, the potential for appreciation might be very small. If you choose a bad neighborhood, you might be able to eke out a positive cash flow, but chances are you will not be able to count on a higher resale price down the road.