“Minimize mistakes to mitigate stress.”
Purchasing real estate as an investment property is one of the smartest financial decisions you can make. Historically speaking, real estate values act as an excellent hedge against inflation. This means the value of the property rises with inflation and what tenants pay in rent can be increased over time. So, income from an investment property will keep pace with the general rise in prices across the economy.
Minimizing risks when purchasing real estate will put you off to a great start. The biggest piece of advice I can give when it comes to purchasing real estate for investing, or primary residence, is “due diligence”! Do your homework and look deeper than the shiny surface. Don’t make these big mistakes.
This is obvious, but needs to be said. Inspect everything you can about the condition of the property. The most important aspects are “The Big Three”; Plumbing, Roof and Foundation. These are the big items that can potentially leave you with a bill of $20k or more! If the condition of these items are subpar you will be able to account for the cost or walk away from the deal. If you are working with a good realtor they will put you in contact with professionals who conduct these inspections.
If you can’t cover the house payment without a tenant for five or more months, don’t buy the house! Always avoid getting into a situation where you’re over-leveraged. I have yet to meet a person with special powers to predict the exact peak of the market. So, there is a possibility that you will purchase real estate at the highest point and lose value for a few years following. You can prevent this before it happens by conservatively not taking on too much debt. Many people did just the opposite from 2000-2007. If you can withstand the storm of the downturn by paying the mortgage with your tenants rent your value can return.
Well located real estate can, and will, increase in value. It is best to view real estate in 10 and 20 year time frames. This type of mindset limits risk when you’re analyzing deals. You need to see the long-term value and stop worrying about what might happen tomorrow. Real estate is fun, exciting, and rewarding. Just make sure that you avoid the big mistakes!