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Mistakes housing investors make

Dave Kelly, GRI — Fri, 16 Sep 2011 19:45:14 +0000

With traditional investments delivering low returns, some are considering buying rental housing. However, potential investors should do their homework and avoid the following common mistakes.

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Investing in real estate right now can be profitable, if everything goes as planned. Rents are increasing in many areas, and more properties may be coming on the market.
Last month, the Obama administration asked for proposals on how to convert at least some of Fannie Mae’s and Freddie Mac’s inventories of foreclosed homes into affordable rentals.
Traditionally, investors rented out properties for 1 percent of the purchase price per month. However, according to one property management firm, today, some investors are receiving as much as 2 percent of the purchase price.
While it may be true that in some areas home prices are relatively low, that doesn’t mean the property can be rented out. Homes in deserted subdivisions aren’t any more appealing to renters than they are to buyers. The same is true for less-attractive properties or those in less-desirable school districts.
Prior to purchasing a property, investors should also factor in closing costs of 3 percent to 6 percent, the costs to fix up the place and maintain it, and the holding costs.
Investors become landlords, and as such, need to keep in mind that, just like homeowners, tenants may not always be able to pay rent. Evicting tenants can take several weeks.
It’s also important to remember that owning a rental is not the same as owning a home. An owner may put up with flaws in a home that a renter wouldn’t tolerate. Additionally, many states and communities have strict laws for landlords, even for those who own only one property.

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