Should You Go It Alone? Consider the risks.

[Annette Hibbler]

I was trolling through real estate sites such as Homes.com and Realty Trak. There is so much opportunity out there. Because I'm primarily interested in Michigan I limited my search in that area.

There were loads of foreclosed properties on there for sale for as little as $5000. Wow, at that price many inexperienced investors would sit up and take notice. In fact, just the other day I was speaking with an investor who was being seduced by those numbers. Buy a foreclosure for $5000, put in another $20K and voila a house ready to rent for $700 and up, right?

Here's a reality check. At those prices, the houses are foreclosed and sold "as is". In other words, they are in dire need of rehabbing. God only knows how long they have sat abandoned before the bank finally got around to listing them. The longer they sat empty, the higher the likelihood of vandalism and squatters taking up residence. Chances are likely rehab costs will include extensive plumbing & electrical, both high ticket items. Banks will require buyer to pay for all inspections.

What sites don't often show you is abandoned warehouse across the street or the burnt out shell of a house next door or the empty retail spaces nearby. Also, chances are these low priced foreclosures are in less than desirable areas. This will impede your efforts to get it rented at anything over $400 monthly.

Even if you're overly optimistic and want to take a stab at rehabbing one of these properties you purchased for next to nothing, consider this...how do you know who to hire? How will you monitor their progress or the quality of their work from across state lines? If you're not around, how will you know if they show up for work? The longer it takes to complete the rehab, the longer you are without cash flow. Who will keep an eye on the place when the rehabbing starts? How will you prevent theft?

Then there's the issue of finding a tenant and managing the property. Richard and I have learned this lesson the hard way. We've had some pretty bad experiences with management agencies who look great on paper but don't give a rats *** once you sign up with them. After nearly two years of false and missing information, unreturned phone calls, uncollected rent and unanswered emails, we had enough.

We were referred to our now current property management team from another property manager in Mississippi. When the new property manager started to put the pieces together, turned out one of our properties lay vacant for nearly a year, another tenant was living in our property without a lease. Repairs that were needed went unattended, tenants stopped paying and repairs now are in the thousands. The old management company stole from us. After all the evidence was gathered and presented, they agreed to settle out of court.

The point is this, there is so much more to investing in real estate rentals than the purchase price or even the rehabbing costs. Going it alone, puts you at great risk.

Unless you have a team in place who are familiar with the area and are looking out for your best interests, the risks of loosing your investment dollars is high.