15 Mistakes Investors Can Avoid on Their Investment Purchase
- Determine Your Time Needed
Talk to a professional real estate agent (click here) about cash flow, capital appreciation, tax benefits, management, equity pay down, or pride of ownership (sometimes these items are mutually exclusive).
- Don’t believe the Seller’s or Seller’s Agent’s numbers
Check everything: rent payments, taxes, expenses, deposits, etc. Puffery is an epidemic in investment real estate.
- Join Your Local Apartment Association
This is the best local source of forms, pending laws, procedures, and education on investment property.
- Don’t forget you’re buying a business
Owning an investment property carries with it great joy and potential as well as very difficult decisions. Getting rid of tenants, who to rent to, whether or not to make that improvement, etc. Remember it’s not a hands-off investment.
- Stay rational, not emotional
An emotional purchase is not always your best investment. Pay attention to the numbers, not necessarily to your heart.
- Avoid negative cash flow
Unless you expect constant appreciation, don’t buy investment property that eats like an alligator, it’s no fun! It may cause you pain and force a sale before the
benefits of ownership can be seen.
- Do a thorough inspection
Look at every inch! Hire a professional inspector and ask the tenants questions about the property.
- Make sure you get Estoppel Letters
Get letters from tenants confirming the statistics of tenancy (make sure their story agrees with sellers interpretation).
- Inspect, approve, and confirm all documents
Get the building permits, zoning laws, rental applications and leases, by-laws, easements, title policy, mineral leases, inspection reports, purchase contract, insurance, rules and regulations, etc., etc., etc. (You get the idea.)
- Get a bill of sale
There are many different types of personal property (appliances and fixtures, for example) involved in an investment sale. Make sure you know who owns it.
- Have adequate insurance
Get a professional insurance agent to make sure you are covered! Tenants bring liabilities!
- Treat your tenants as customers
Vacancies and turnovers are your largest expense! Charge fair rents and attend to realistic tenant needs immediately.
- Select qualified tenants from the start
Check references from previous landlords, employers, bankers, and friends. Check credit, bank balances, and judgments. Drive by where they currently live. A little work up front can save many problems later.
- Rent Right!
Low rent costs money, but can cut turnover and can decrease vacancies. High rent increases cash flow and the value of the building, but can increase the vacancy factor and turnover.
- Don’t spend positive cash flow!
Remember, successful investors have free and clear properties! Apply your cash flow to the payment and speed up that amortization schedule. What if interest rates start to rise? Watch break out and refix costs. As interest rates rise, so do rents. Any "loss" made from rising interest rates are off-set by the tax-deductibility.
For more information about Medley Landmarks or any of our investment properties, please contact us.
