A great way to invest your money, or the money of your business is to invest your money into a real estate portfolio. The benefits of investing in real estate are varied, but it is primarily about return. You rent a site out to a tenant, and you get a return each month in the form of rent that goes a long way towards paying off the mortgage of the property (if one exists). Lots of people prefer to invest in real estate as it is a tangible asset and with the money involved in most businesses, it is easy to develop a real estate portfolio in no time at all.
However, with every type of investment, there are pitfalls. This is the same with real estate investment. There are problems, there are issues and there are worries. This is the same with every single type of investment as no investment is truly risk-free. Today we’ll take a look at the risk involved with property investment.
For the most part, real estate investment is safe – as long as you are conservative and smart. A big problem with real estate investment is that properties will be purchased that aren’t used, meaning no money can be gained. Assess the use and popularity of a property before investing.
Research is key when investing in anything, but it is incredibly important when investing in real estate due to the expense involved. Using resources like this website can help you get clued up on the properties on the market so you can make an informed decision. Before most people buy anything, be it a games console or even a pair of curtains, they usually compare makes, ask a bunch of questions and see which option is the best for their money. This sort of process needs to be used when buying a property, but more intensive in style. It’s not just the property that needs to be researched, though. You’ll need to research the area, the permit issues, structural plans and anything else you can think of.
If you’re investing in property and you haven’t done your research, you’re going to run into another problem. You are going to overpay for your property. If investing in property for your business, never overpay – and walk away from a deal if the seller is sticking to a price that is too high. It’s usually homeowners that overbid in their anxiety to get a deal done; this excuse isn’t there for business investors.
How do you know if the price is too high? Easy. Access the history of sales on the site and check property sales in the area. If properties are being bought at the same price as the asking price on the property you are interested in, it is likely that the seller is asking for a fair price. If properties are being sold for cheaper, you’ve got a case to knock the price down. Always negotiate. A big mistake is to simply walk up with cash and buy the property at asking price, you could be overpaying. Overpaying comes in other forms though. Commercial properties will probably cost you more since banks like to charge premiums to businesses. It’s because these types of properties are different – businesses collapse easily and fade away – so it’s harder for banks to collect cash than say from homeowners. The bank will charge a high interest rate to collect as much cash as possible.
A big problem comes in the form of the property itself. As a landlord, you’ll have a responsibility to your tenants to ensure that the property is well maintained. Of course, this comes at a cost. Sometimes, especially for a property in poor condition, these costs can be huge and regular meaning that an investment ensures that you lose money. This should have been covered in your research though. No matter the property, you’ll always have to maintain it to ensure the happiness of your tenants. Hidden costs like maintenance should be glaring. If you’re counting on your return though, you might be ignoring something else. Tax. Every business needs to push profits towards the government. This goes deeper for properties as investors will be hit with a property tax as well as a tax on the profits made from the property. Another hidden fee is insurance, owning properties requires insurance. Your property must also be compliant with regulations, ensuring that rent is paid into special accounts and documentation is provided. This might be an expense, as failure to comply will result in charges and fines. It’s not just that though – sometimes a property won’t find tenants for months and the charges to you don’t stop just because the site is empty.
For your business coffers, no investment is a get rich quick scheme. Real estate investment is no quick fix and in some cases, especially considering the hidden costs such as tax and maintenance that aren’t on the asking price, you could be losing money over a period of time. This mistake could be lethal for your finances. Unresearched real estate investment is never going to work!
Despite all this, these are the pitfalls that happen with a lack of research. For the most part, property is an amazing investment, but only if you can be bothered to put in the hours of research and collate the correct amount of cash before starting out. That goes for pretty much any investment. Investors with more money than sense will run into problems and pitfalls very quickly. The biggest problem in real estate investment will always be the problems encountered due to a lack of forethought or research, so you what? If you are interested in any kind of investment, you need to plan and do your research! Read up and calculate your decision before you throw major money at a mistake. A big loss in real estate could be catastrophic to your finances and it could be your business that takes the biggest hit of all.