Before making a push to buying an investment property to rent, take a look at the likely traps worthy of consideration:
- Distorted Financial Outlay
The majority of investors tag on the notion of being a real estate owner without weighing their personal finances. Making an initial payment for a property with the belief that ‘all journey begins with a step’ is a flawed concept form the start. This is largely due to an inability to make further payments which only opens the investor to either losing the initial payment outright or some clauses being activated which affects everything in its entirety.
Investment in rental property begins with a sound analysis of one’s financial position and with a clear budget on hand which is one of the main criteria for selecting the right property that fits your investment goals.
- Absence of an Investment Criteria
A major mistake by novices is buying an investment property to rent without a clear set of criteria. The end result is a likely purchase of property that puts money in other people’s pockets at the loss of the investor.
For instance, in a fast-paced market where people are frenzy making a purchase for property and deciding afterward what to do with them. Those investors get hooked with the sales pitches of smooth-talking real estate brokers promising quick profits as if they have a crystal ball.
I have seen many wannabe investors fall victim to buying off-plan, parking their money for years to come with a likely sale in a few years’ time for a profit before registering title in their name. Many of these investors do not even have enough capital to fund the full tag of those properties should they be unable to source funds. The stance is the loss of time and resources whilst the investor complains of how risky real estate investing is.
In considering a foolproof investment guide on this, the engagement of a sound realtor to check all ends is at best advised to avoid the many downsides that are likely to arise in the course of making this investment.
- Lack of Financial Checks
It’s important for an investor making an investment property choice to run the numbers rather than running on emotions as to the essence of making the investment decision. The rental property analysis should be done to the latter to determine the investment benefits that accrue to the decision being made in the first instance. As is known, numbers do not lie only when it is fully checked from all parameters like; Inflation, Disposable income, Trends, etc.
- Absence of Due Diligence
This is about doing thorough checks on the property title and the physical property aligning with the decision being made. This is to guard the investor against shocks that might emanate from a wrong decision.
The important consideration to be made in doing due diligence should be;
- Physical inspection of the property to check parts as presented
- Document inspection to reveal property status
- Financial inspection to ascertain numbers as presented vis rental income, taxes, fees, etc
- Getting the Wrong Financing
Rental property investment for beginners is a challenge due to a lack of capital to fund these properties. Very few people can actually afford to purchase investment properties with cash, and most usually resort to loans which is an integral part of owning a portfolio of properties.
The caveat is for beginners to go over all the options available and run the numbers to see if there will be positive cash flow or the investor will be struggling to keep up with installments.