Beating the Money Trap: Tips for New Investors

AMA5-8-13As the housing market regains its footing after the crash and subsequent slump of the last few years, increasing numbers of people in all age groups are considering buying homes as investments for a healthier financial future. But, say some industry watchers, for some, that dream of financial freedom doesn’t materialize and they’re losing money instead of making it. With that in mind, a number of real estate experts suggest that new investors keep in mind some key considerations before they buy.

Choose properties in good condition. Although it’s possible to get a smoking hot deal on a fixer upper in a decent neighborhood, getting the property in shape to yield a return on the investment can be a time consuming and expensive proposition. While repairs are going on the property can’t be rented and so won’t yield an income. And repairs and upgrades often end up costing more than expected. Industry experts recommend searching for properties in the best shape possible for the amount you can afford – these homes can be rented quickly with minimal fix-up.

Properties in low vacancy areas are less risky than those in areas where many homes stand vacant. High vacancy rates in surrounding areas may mean a long wait to get qualified tenants. What’s more, vacant properties invite vandalism and other problems in the neighborhood, which affects both property values and the potential for attracting the best tenants. In some areas, large numbers of vacant homes may be unresolved foreclosures – the so-called “zombie” properties that may not be rentable for months or even years.

For the same reasons, buying a property that already has good tenants in place trumps buying a currently vacant one. That saves expenditures related to cleaning and repairing a house to get it ready for tenants, and eliminates the vacancy period before they move in. Financial experts suggest taking a look at current tenants’ credit payment history as part of the decision to buy a property. And if the property itself is a winner, but the tenant isn’t, a prospective landlord may need to consider options for terminating or renegotiating lease agreements.

Boring properties may be less risky than those in highly desirable or flashy locations. A moderately priced house in a quiet neighborhood near schools and shopping may be easier to keep rented and maintained than a more exotic beachfront or resort0 area property with a high tenant turnover that may be more appropriate as a short-term rental.

Though flipping properties for quick gains became popular in recent years due to the housing crash, real estate advisers recommend buying properties with an eye to longevity – keeping the property long term with regular refinancing. That plan allows for maximum gain with minimum risk, with benefits including landlord/investor tax breaks and continued income from reliable tenants – a strategy that, as Jason Hartman advises, can weather economic storms. (Top image: Flickr/rutio)

The American Monetary  Association Team

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