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Common Mistakes When Buying Rental Real Estate

On Behalf of | Jul 21, 2022 | Business Law

Investing in rental real estate can be a great way to make money. But not all rental real estate is created equal. You need to make sure that you’re making the right decision before diving into a purchase agreement on a piece of property. To do so, it’s helpful to know the most common mistakes that are made when purchasing rental real estate, that way you can diligently work to avoid them.

So, what are some of those common mistakes? Let’s look at them here:

  1. Lack of adequate research: With the housing market as hot as it has been recently, it’s tempting to snatch up a property before someone else gets it. But this quick approach typically means that you’re foregoing adequate research on the property. Make sure that you’re conducting appropriate due diligence in considering the work that the property needs, any zoning restrictions and income potential based on location and market conditions.
  2. Failing to have a plan: When you buy a piece of rental property, you need to have a plan in the event that the market faces a downturn. That way you’re ready to protect your investment and your income even in the most difficult of times.
  3. Overstretching: Taking on a large rental property or multiple rental properties can be enticing, but you don’t want to stretch yourself too thin. Doing so could put you in a financial predicament where you’re unable to cover maintenance costs, taxes, and general upkeep.
  4. Not having enough cash on hand: You can’t assume that your rental property will be rented at full capacity all the time. Therefore, you need to make sure that you have a realistic expectation of what your income from the property will look like. With that in mind, you’ll want to ensure that you have cash on hand to serve as a buffer so that you don’t end up facing financial hardship in the event that your property doesn’t rent the way that you’d hoped and expected.
  5. Underestimating expenses: A rental property is going to need a lot of upkeep and maintenance. And this work can be quite expensive over time. Make sure that you have a realistic picture of how much all of this is going to cost so that you’re not taken by surprise and left losing money due to improper cost estimates.
  6. Securing unfavorable financing: Financing costs can be extraordinarily large over time. Therefore, you should make sure that you do your homework to understand exactly what your financing agreement entails. If you get locked into financing that comes with a high interest rate or a high mortgage insurance rate, then you could be facing costs that are depressive to your earnings.
  7. Trying to do it all on your own: Buying and maintaining a rental property takes a lot of work. If you try to take it on all by yourself, then you might be so overwhelmed that you make costly mistakes. You don’t want that to happen.

Secure the help that you need navigating your real estate transaction

There’s a lot to take into consideration as you consider buying a rental property. To reduce the amount of risk and to maximize your chances of making a successful purchase that positions you for success, you may want to consider working closely with an experienced real estate law attorney. One of these legal professionals can leave you feeling at ease and confident that you’re on the path to success.