Wednesday, April 26, 2017

9 Real Estate Mistakes That Won't Get Your Wallet Fatter

estate investments
For most individuals, the real estate market is a ladder to wealth – assuming that you can either buy to sell or buy to rent. However, besides the financial obligations that go hand in hand with real estate – to put it in other words, mortgages have their importance – there are some essential mistakes that you should avoid to make the most of the real estate wealth potential. Indeed, when you buy to rent or to sell, it’s important that you take great care of your property, your responsibilities as a homeowner or a landlord, your advising circle, and your budgeting skills. There’s nothing worse than a real estate investment that turns into a nightmare money hole. Here are the nine most common real estate mistakes that you need to avoid.

#1. Buying Above Your Budget

For a start, when you decide to buy a house or a flat, it is important that you keep a realistic view of your buyer’s budget. Purchasing a property that is too expensive means that you won’t be able to afford for its maintenance, renovation, and insurance. Additionally, if you are thinking about buying with a mortgage, an expensive home will force you to monitor your expenses closely, making it impossible to care for utility costs, decoration, and household living. In short, it’s important to take into consideration how much you can truly afford. Real estate is an investment, not a financial disaster. But it can only be so if you are careful and tactical about the amount of your investment. 

#2. Not Checking Tenancy Options

For most real estate investors, the plan is to turn to the tenancy market to create a regular and passive income. However, when you are planning to do so, you need to research your tenancy options thoroughly. For instance, HDB flats, which are public housing from the Housing and Development Board, are open to being rented out only after the owners have satisfied the minimum occupation period – three to five years depending on whether the flat was bought before or after 2010. Additionally, you can only sublet your flat to citizens or permanent residents with written approval from the HDB. Naturally, other tenancy factors can play a role, such as criminal records, credit checks, and even family situations in some cases. Therefore, if you are buying to rent you need to be aware of the local tenancy restrictions.

#3. Working With An Inexperienced Agent

There is a saying that your real estate purchase will be only as good as the real estate agent is. While it can be a little unfair, it is also true that you are very much relying on the expertise and knowledge of a real estate agency to find the best possible property at the best price. Your agent becomes an advisor, not only in terms of location, but also extension and renovation policies, mortgage options, property standards and quality, and local facilities. While experienced agents will be able to support you in your research and to find the most suitable properties for your requirements, it’s likely that inexperienced agents will be wasting your time and your money, and may even convince you to buy a non-suitable house or flat. 

#4. Not Adding Value To The Home

When it comes to buying a house to sell, it’s important that you develop a plan of renovation projects that will add more value to the property. Before you consider a kitchen or bathroom renovation, there are other projects that have a valuable ROI – in other words, these projects add more the house value than they cost, or nearly as much. Installing an attic insulation brings an 117% return, as for more home buyers it is synonymous with low energy bills, something that they are happy to invest in. Garage door replacement and front door replacement have other 90% return, making them a profitable renovation project. In comparison, kitchen and bathroom updates can sometimes play against your final selling price, especially if you pick colors and materials that don’t appeal to buyers. It’s likely that the price will have to be reduced to take into consideration the renovation budget of the buyer. 

#5. Not Picking The Right Tenants

When you decide to rent your property, you need to be aware of the risk of renting to what is called in the real estate business, the nightmare tenants. Nightmare tenants are so named because they cause you more problems than they bring benefits. Late payers are, for instance, common but difficult to spot. However, their delayed payments can make it difficult for you to pay the mortgage on the property. Animal lovers can be difficult to deal with, because unless you visit the property, you may not know that they’ve moved in with their pets. However, when they move out, it’s likely that you will need to proceed to renovation work to be able to put the property back for rent. In short, make sure that you interview your future tenants thoroughly!

#6. Not Buying In The Right Location

There’s nothing that matters as much as location when you are buying a property to rent. Indeed, your tenants will be looking for houses or flats that are ideally placed for them to go to work and to visit their family and relatives. This means that you will find it easier to rent a town flat than a barn in the countryside. But more importantly, when you are looking at location, you need to take the local facilities into consideration, such as whether there is a school or not, shops, and a medical surgery. Additionally, the quality of the public transport in the area will influence the tenant’s decision to rent or not, especially if they rely on bus or train transport to go to work or school. 

#7. Not Budgeting Renovations

Renovation projects are necessary but expensive. In average, over half of homeowners don’t budget their projects correctly and find themselves having to pay twice as much than what they first expected. One in five homeowners will fit a new bathroom or a new kitchen as their first renovation project, whether they are looking to buy a house to sell or rent. Bathrooms and kitchens are among the most expensive rooms to upgrade. However, they are also rarely taken into consideration at the time of the property purchase. Additionally, 47% of buyers will consider upgrading the bedroom too, and 43% will look at changing the living room. To put it in other words, not budgeting these renovations at the time of purchase can not only make it difficult to pay the mortgage on the property but will also create a lasting negative ROI.

#8. Not Taking The Right Insurance

Homeowners take a home insurance, while landlords pick a landlord insurance that protects them from the damages caused by hazardous tenancy. However, there is more than one type of insurances, and it’s essential that you understand exactly what you need. For instance, an earthquake insurance is an additional insurance that you need to take if your property is in an earthquakes zone. Additionally, flooding insurances can sometimes come as a separate insurance, in some regions. Don’t miss out on protection because you think that the insurance is unnecessarily expensive!

#9. Not Setting The Appropriate Price

When it comes to building your wealth using real estate, price is key to your success. It needs to be the right price too. If your tenancy or selling price is too low, it’s likely that potential tenants and buyers will be suspicious about the property. Make it too high, and they will run away. So, as you decide to set up a price, it’s best to compare with similar properties on the market, as well as to research the current prices in your locations.

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