Mistakes housing investors make
The Wall
Street Journal
With traditional
investments delivering low returns, some are considering buying rental
housing. However, potential investors should do their homework and avoid
the following common mistakes.
Making sense of the
story
- Investing in real estate
right now can be profitable, if everything goes as planned. Rents
are increasing in many areas, and more properties may be coming on the
market.
- Last month, the Obama
administration asked for proposals on how to convert at least some of
Fannie Mae’s and Freddie Mac’s inventories of foreclosed homes into
affordable rentals.
- Traditionally, investors
rented out properties for 1 percent of the purchase price per month.
However, according to one property management firm, today, some investors
are receiving as much as 2 percent of the purchase price.
- While it may be true that in
some areas home prices are relatively low, that doesn’t mean the property
can be rented out. Homes in deserted subdivisions aren’t any more
appealing to renters than they are to buyers. The same is true for
less-attractive properties or those in less-desirable school districts.
- Prior to purchasing a
property, investors should also factor in closing costs of 3 percent to 6
percent, the costs to fix up the place and maintain it, and the holding
costs.
- Investors become landlords,
and as such, need to keep in mind that, just like homeowners, tenants may
not always be able to pay rent. Evicting tenants can take several
weeks.
- It’s also important to remember that owning a
rental is not the same as owning a home. An owner may put up with
flaws in a home that a renter wouldn’t tolerate. Additionally, many
states and communities have strict laws for landlords, even for those who
own only one property.
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