Here is an article I wrote about some risks to consider when buying investments for rental and flips.
Share your Thoughts and Ideas.
If you have recently acquired some investment real estate, you are not alone. Recent researches propose that as many as 25% of real estate purchases are made by those who plan on using the property for investment purposes only. If you hope to "flip" the property there are four major things you must be aware of that can affect your expected profits
1. Property Taxes. Keeping the property for a few years will cause you to experience an increase in property taxes especially if the property taxes are being reevaluated during the period of your ownership. Some hot real estate markets have seen taxes nearly a double increase in just 5 or 6 years. In addition, property taxes reduce the borrowing ability of the potential buyers as taxes are part of the mortgage payment calculation for loan qualification.
2. Remodeling and rehab Expenses. You may have purchased a property at a great price. Once you have completed your renovation project, will you be able to recover the cost and collect a profit especially if the value of your rehabbed property is higher than those recently sold in your neighborhood? In addition, can you keep up a correction in real estate values? Will the property appraise? Is it reasonably updated or over updated?
3. Insurance and Mortgage Costs. You have to take in to consideration that the property insurance will be higher as you don’t occupy the property or have tenants, also keep in mind additional insurance requirements such as flood insurance if the property located in flood zone. Rate for mortgage might be different for investment loans as well.
4. Rental rates and issues. Always check the rental rates in the area and competition so you know what income ratio to expect. In addition, landlord and tenant ordinances and laws can differ from place to place that can affect your ability to deal with non-paying or non-cooperative tenant. Create a unified policy of screening your tenant and decide based of credit and income verification. Consult an attorney regarding rental agreements and policies.
You can always limit your risks by rehabbing the property yourself, working on your property taxes by appealing the increases, and by screening and finding great tenants. It simple and easy to invest in real estate but as any investment it can have some risks. Always consult a Realtor to get the most accurate picture of the market!!! In addition, to minimize your risks and liabilities consult a Tax professional or an attorney.
Nate V.
Realtor in Illinois
HomeSmart Connect LLC
